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IRS Releases Publication 946 (2016), How to Depreciate Property


Publication 946 (2016)

DATED
DOCUMENT ATTRIBUTES
Citations: Publication 946 (2016)
For use in preparing 2016 Returns

Future Developments

 

What's New for 2016

 

What's New for 2017

 

Reminders

 

Introduction

 

1. Overview of Depreciation

 

2. Electing the Section 179 Deduction

 

3. Claiming the Special Depreciation Allowance

 

4. Figuring Depreciation Under MACRS

 

5. Additional Rules for Listed Property

 

6. How To Get Tax Help

 

Appendix A. MACRS Percentage Table Guide

 

Appendix B. Table of Class Lives and Recovery Periods

 

Glossary

 

Section 179 Deduction

Special Depreciation Allowance

MACRS

Listed Property

 

Future Developments

For the latest information about developments related to Pub. 946, such as legislation enacted after this publication was published, go to http://www.irs.gov/pub946.

What's New for 2016

Increased section 179 deduction dollar limits. The maximum amount you can elect to deduct for most section 179 property you placed in service in tax years beginning in 2016 is $500,000 ($535,000 for qualified enterprise zone property). This limit is reduced by the amount by which the cost of section 179 property placed in service during the tax year exceeds $2,010,000. See Dollar Limits in chapter 2.

Special depreciation allowance for qualified second generation biofuel plant property. The special depreciation allowance will not apply to qualified second generation biofuel plant property placed in service after December 31, 2016. See Qualified Second Generation Biofuel Plant Property in chapter 3.

Special depreciation allowance for certain plants. You can elect to claim the special depreciation allowance for certain specified plants bearing fruits and nuts for the tax year in which the specified plants are planted or grafted. This election applies to specified plants planted or grafted after December 31, 2015. See Certain plants bearing fruits and nuts in chapter 3.

Certain race horses. The 3-year recovery period for race horses two years old or younger will not apply to horses placed in service after December 31, 2016. See Which Property Class Applies Under GDS in chapter 4.

Qualified motor sports entertainment complexes. Qualified motor sports entertainment complex property placed in service after December 31, 2016, will not be treated as 7-year property under MACRS. See Which Property Class Applies Under GDS in chapter 4.

Accelerated depreciation for qualified Indian reservation property. The accelerated depreciation of property on an Indian reservation will not apply to property placed in service after December 31, 2016, or, if you make an irrevocable election out of all property in a class of property that is placed in service in a tax year beginning after December 31, 2015. See Indian Reservation Property in chapter 4.

Depreciation limits on business vehicles. The total section 179 deduction and depreciation you can deduct for a passenger automobile (that is not a truck or van) you use in your business and first placed in service in 2016 is $3,160, if the special depreciation allowance does not apply. The maximum deduction you can take for a truck or van you use in your business and first placed in service in 2016 is $3,560, if the special depreciation allowance does not apply. See Maximum Depreciation Deduction in chapter 5.

What's New for 2017

Section 179 deduction dollar limits. The maximum amount you can elect to deduct for most section 179 property you placed in service in tax years beginning in 2017 is $510,000. This limit is reduced by the amount by which the cost of section 179 property placed in service during the tax year exceeds $2,030,000.

Reminders

Photographs of missing children. The Internal Revenue Service is a proud partner with the National Center for Missing & Exploited Children® (NCMEC). 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 deductions for depreciation (for example, the special depreciation allowance and deductions under the Modified Accelerated Cost Recovery System (MACRS)). 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.

CAUTION: The depreciation methods discussed in this publication generally do not apply to property placed in service before 1987. For more information, see Pub. 534, Depreciating Property Placed in Service Before 1987.

Definitions. Many of the terms used in this publication are defined in the Glossary near the end of the publication. Glossary terms used in each discussion under the major headings are listed before the beginning of each discussion throughout 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      527, Residential Rental Property

 

 property                (Including Rental of Vacation Home)

 

 -------------------------------------------------------------

 

 Office space in         587, Business Use of Your Home

 

 your home               (Including Use by Daycare Providers)

 

 -------------------------------------------------------------

 

 Farm property           225, Farmer's Tax Guide

 

 -------------------------------------------------------------

 

 

Comments and suggestions. We welcome your comments about this publication and your suggestions for future editions.

You can send us comments from http://www.irs.gov/formspubs. Click on "More Information" and then on "Give us feedback." Or you can write to:

Internal Revenue Service Tax Forms and Publications 1111 Constitution Ave. NW, IR-6526 Washington, DC 20224

We respond to many letters by telephone. Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence.

Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products.

Ordering forms and publications. Visit http://www.irs.gov/formspubs/ to download forms and publications. Otherwise, you can go to http://www.irs.gov/orderforms to order current and prior-year forms and instructions. Your order should arrive within 10 business days.

Tax questions. If you have a tax question not answered by this publication, check IRS.gov and How To Get Tax Help at the end of this publication.

1. Overview of Depreciation

Introduction

Depreciation is an annual income tax deduction that allows you to recover the cost or other basis of certain property over the time you use the property. It is an allowance for the wear and tear, deterioration, or obsolescence of the property.

This chapter discusses the general rules for depreciating property and answers the following questions.

 

• What property can be depreciated?

• What property cannot be depreciated?

• When does depreciation begin and end?

• What method can you use to depreciate your property?

• What is the basis of your depreciable property?

• How do you treat repairs and improvements?

• Do you have to file Form 4562?

• How do you correct depreciation deductions?

 

Useful Items

You may want to see:

Publication

 

Publication 534 Depreciating Property Placed in Service Before 1987

Publication 535 Business Expenses

Publication 538 Accounting Periods and Methods

Publication 551 Basis of Assets

 

Form (and Instructions)

 

Sch C (Form 1040) Profit or Loss From Business

Sch C-EZ (Form 1040) Net Profit From Business

Form 2106 Employee Business Expenses

Form 2106-EZ Unreimbursed Employee Business Expenses

Form 3115 Application for Change in Accounting Method

Form 4562 Depreciation and Amortization

 

See chapter 6 for information about getting publications and forms.

What Property Can Be Depreciated?

Terms you may need to know (see Glossary):

 

• Adjusted basis

• Basis

• Commuting

• Disposition

• Fair market value

• Intangible property

• Listed property

• Placed in service

• Tangible property

• Term interest

• Useful life

 

You can depreciate most types of tangible property (except land), such as buildings, machinery, vehicles, furniture, and equipment. You also can depreciate certain intangible property, such as patents, copyrights, and computer software.

To be depreciable, the property must meet all the following requirements.

 

• It must be property you own.

• It must be used in your business or income-producing activity.

• It must have a determinable useful life.

• It must be expected to last more than one year.

 

The following discussions provide information about these requirements.

Property You Own

To claim depreciation, you usually must be the owner of the property. You are considered as owning property even if it is subject to a debt.

Example 1. You made a down payment to purchase rental property and assumed the previous owner's mortgage. You own the property and you can depreciate it.

Example 2. You bought a new van that you will use only for your courier business. You will be making payments on the van over the next 5 years. You own the van and you can depreciate it.

Leased property. You can depreciate leased property only if you retain the incidents of ownership in the property (explained below). This means you bear the burden of exhaustion of the capital investment in the property. Therefore, if you lease property from someone to use in your trade or business or for the production of income, you generally cannot depreciate its cost because you do not retain the incidents of ownership. You can, however, depreciate any capital improvements you make to the property. See How Do You Treat Repairs and Improvements later in this chapter, and Additions and Improvements under Which Recovery Period Applies in chapter 4.

If you lease property to someone, you generally can depreciate its cost even if the lessee (the person leasing from you) has agreed to preserve, replace, renew, and maintain the property. However, if the lease provides that the lessee is to maintain the property and return to you the same property or its equivalent in value at the expiration of the lease in as good condition and value as when leased, you cannot depreciate the cost of the property.

Incidents of ownership. Incidents of ownership in property include the following.

 

• The legal title to the property.

• The legal obligation to pay for the property.

• The responsibility to pay maintenance and operating expenses.

• The duty to pay any taxes on the property.

• The risk of loss if the property is destroyed, condemned, or diminished in value through obsolescence or exhaustion.

 

Life tenant. Generally, if you hold business or investment property as a life tenant, you can depreciate it as if you were the absolute owner of the property. However, see Certain term interests in property under Excepted Property, later.

Cooperative apartments. If you are a tenant-stockholder in a cooperative housing corporation and use your cooperative apartment in your business or for the production of income, you can depreciate your stock in the corporation, even though the corporation owns the apartment.

Figure your depreciation deduction as follows.

 

1. Figure the depreciation for all the depreciable real property owned by the corporation in which you have a proprietary lease or right of tenancy. If you bought your cooperative stock after its first offering, figure the depreciable basis of this property as follows.

 

a. Multiply your cost per share by the total number of outstanding shares, including any shares held by the corporation.

b. Add to the amount figured in (a) any mortgage debt on the property on the date you bought the stock.

c. Subtract from the amount figured in (b) any mortgage debt that is not for the depreciable real property, such as the part for the land.

 

2. Subtract from the amount figured in (1) any depreciation for space owned by the corporation that can be rented but cannot be lived in by tenant-stockholders.

3. Divide the number of your shares of stock by the total number of outstanding shares, including any shares held by the corporation.

4. Multiply the result of (2) by the percentage you figured in (3). This is your depreciation on the stock.

 

Your depreciation deduction for the year cannot be more than the part of your adjusted basis in the stock of the corporation that is allocable to your business or income-producing property. You must also reduce your depreciation deduction if only a portion of the property is used in a business or for the production of income.

Example. You figure your share of the cooperative housing corporation's depreciation to be $30,000. Your adjusted basis in the stock of the corporation is $50,000. You use one half of your apartment solely for business purposes. Your depreciation deduction for the stock for the year cannot be more than $25,000 (1/2 of $50,000).

Change to business use. If you change your cooperative apartment to business use, figure your allowable depreciation as explained earlier. The basis of all the depreciable real property owned by the cooperative housing corporation is the smaller of the following amounts.

 

• The fair market value of the property on the date you change your apartment to business use. This is considered to be the same as the corporation's adjusted basis minus straight line depreciation, unless this value is unrealistic.

• The corporation's adjusted basis in the property on that date. Do not subtract depreciation when figuring the corporation's adjusted basis.

 

If you bought the stock after its first offering, the corporation's adjusted basis in the property is the amount figured in (1) above. The fair market value of the property is considered to be the same as the corporation's adjusted basis figured in this way minus straight line depreciation, unless the value is unrealistic.

For a discussion of fair market value and adjusted basis, see Pub. 551.

Property Used in Your Business or Income-Producing Activity

To claim depreciation on property, you must use it in your business or income-producing activity. If you use property to produce income (investment use), the income must be taxable. You cannot depreciate property that you use solely for personal activities.

Partial business or investment use. If you use property for business or investment purposes and for personal purposes, you can deduct depreciation based only on the business or investment use. For example, you cannot deduct depreciation on a car used only for commuting, personal shopping trips, family vacations, driving children to and from school, or similar activities.

RECORDS: You must keep records showing the business, investment, and personal use of your property. For more information on the records you must keep for listed property, such as a car, see What Records Must Be Kept in chapter 5.

CAUTION: Although you can combine business and investment use of property when figuring depreciation deductions, do not treat investment use as qualified business use when determining whether the business-use requirement for listed property is met. For information about qualified business use of listed property, see What Is the Business-Use Requirement in chapter 5.

Office in the home. If you use part of your home as an office, you may be able to deduct depreciation on that part based on its business use. For information about depreciating your home office, see Pub. 587.

Inventory. You cannot depreciate inventory because it is not held for use in your business. Inventory is any property you hold primarily for sale to customers in the ordinary course of your business.

If you are a rent-to-own dealer, you may be able to treat certain property held in your business as depreciable property rather than as inventory. See Rent-to-own dealer under Which Property Class Applies Under GDS in chapter 4.

In some cases, it is not clear whether property is held for sale (inventory) or for use in your business. If it is unclear, examine carefully all the facts in the operation of the particular business. The following example shows how a careful examination of the facts in two similar situations results in different conclusions.

Example. Maple Corporation is in the business of leasing cars. At the end of their useful lives, when the cars are no longer profitable to lease, Maple sells them. Maple does not have a showroom, used car lot, or individuals to sell the cars. Instead, it sells them through wholesalers or by similar arrangements in which a dealer's profit is not intended or considered. Maple can depreciate the leased cars because the cars are not held primarily for sale to customers in the ordinary course of business, but are leased.

If Maple buys cars at wholesale prices, leases them for a short time, and then sells them at retail prices or in sales in which a dealer's profit is intended, the cars are treated as inventory and are not depreciable property. In this situation, the cars are held primarily for sale to customers in the ordinary course of business.

Containers. Generally, containers for the products you sell are part of inventory and you cannot depreciate them. However, you can depreciate containers used to ship your products if they have a life longer than one year and meet the following requirements.

 

• They qualify as property used in your business.

• Title to the containers does not pass to the buyer.

 

To determine if these requirements are met, consider the following questions.

 

• Does your sales contract, sales invoice, or other type of order acknowledgment indicate whether you have retained title?

• Does your invoice treat the containers as separate items?

• Do any of your records state your basis in the containers?

 

Property Having a Determinable Useful Life

To be depreciable, your property must have a determinable useful life. This means that it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes.

Property Lasting More Than One Year

To be depreciable, property must have a useful life that extends substantially beyond the year you place it in service.

Example. You maintain a library for use in your profession. You can depreciate it. However, if you buy technical books, journals, or information services for use in your business that have a useful life of one year or less, you cannot depreciate them. Instead, you deduct their cost as a business expense.

What Property Cannot Be Depreciated?

Terms you may need to know (see Glossary):

 

• Amortization

• Basis

• Goodwill

• Intangible property

• Remainder interest

• Term interest

 

Certain property cannot be depreciated. This includes land and certain excepted property.

Land

You cannot depreciate the cost of land because land does not wear out, become obsolete, or get used up. The cost of land generally includes the cost of clearing, grading, planting, and landscaping.

Although you cannot depreciate land, you can depreciate certain land preparation costs, such as landscaping costs, incurred in preparing land for business use. These costs must be so closely associated with other depreciable property that you can determine a life for them along with the life of the associated property.

Example. You constructed a new building for use in your business and paid for grading, clearing, seeding, and planting bushes and trees. Some of the bushes and trees were planted right next to the building, while others were planted around the outer border of the lot. If you replace the building, you would have to destroy the bushes and trees right next to it. These bushes and trees are closely associated with the building, so they have a determinable useful life. Therefore, you can depreciate them. Add your other land preparation costs to the basis of your land because they have no determinable life and you cannot depreciate them.

Excepted Property

Even if the requirements explained in the preceding discussions are met, you cannot depreciate the following property.

 

• Property placed in service and disposed of in the same year. Determining when property is placed in service is explained later.

• Equipment used to build capital improvements. You must add otherwise allowable depreciation on the equipment during the period of construction to the basis of your improvements. See Uniform Capitalization Rules in Pub. 551.

• Section 197 intangibles. You must amortize these costs. Section 197 intangibles are discussed in detail in chapter 8 of Pub. 535. Intangible property, such as certain computer software, that is not section 197 intangible property, can be depreciated if it meets certain requirements. See Intangible Property, later.

• Certain term interests.

 

Certain term interests in property. You cannot depreciate a term interest in property created or acquired after July 27, 1989, for any period during which the remainder interest is held, directly or indirectly, by a person related to you. A term interest in property means a life interest in property, an interest in property for a term of years, or an income interest in a trust.

Related persons. For a description of related persons, see Related Persons, later. For this purpose, however, treat as related persons only the relationships listed in items (1) through (10) of that discussion and substitute "50%" for "10%" each place it appears.

Basis adjustments. If you would be allowed a depreciation deduction for a term interest in property except that the holder of the remainder interest is related to you, you generally must reduce your basis in the term interest by any depreciation or amortization not allowed.

If you hold the remainder interest, you generally must increase your basis in that interest by the depreciation not allowed to the term interest holder. However, do not increase your basis for depreciation not allowed for periods during which either of the following situations applies.

 

• The term interest is held by an organization exempt from tax.

• The term interest is held by a nonresident alien individual or foreign corporation, and the income from the term interest is not effectively connected with the conduct of a trade or business in the United States.

 

Exceptions. The above rules do not apply to the holder of a term interest in property acquired by gift, bequest, or inheritance. They also do not apply to the holder of dividend rights that were separated from any stripped preferred stock if the rights were purchased after April 30, 1993, or to a person whose basis in the stock is determined by reference to the basis in the hands of the purchaser.

When Does Depreciation Begin and End?

Terms you may need to know (see Glossary):

 

• Basis

• Exchange

• Placed in service

 

You begin to depreciate your property when you place it in service for use in your trade or business or for the production of income. You stop depreciating property either when you have fully recovered your cost or other basis or when you retire it from service, whichever happens first.

Placed in Service

You place property in service when it is ready and available for a specific use, whether in a business activity, an income-producing activity, a tax-exempt activity, or a personal activity. Even if you are not using the property, it is in service when it is ready and available for its specific use.

Example 1. Donald Steep bought a machine for his business. The machine was delivered last year. However, it was not installed and operational until this year. It is considered placed in service this year. If the machine had been ready and available for use when it was delivered, it would be considered placed in service last year even if it was not actually used until this year.

Example 2. On April 6, Sue Thorn bought a house to use as residential rental property. She made several repairs and had it ready for rent on July 5. At that time, she began to advertise it for rent in the local newspaper. The house is considered placed in service in July when it was ready and available for rent. She can begin to depreciate it in July.

Example 3. James Elm is a building contractor who specializes in constructing office buildings. He bought a truck last year that had to be modified to lift materials to second-story levels. The installation of the lifting equipment was completed and James accepted delivery of the modified truck on January 10 of this year. The truck was placed in service on January 10, the date it was ready and available to perform the function for which it was bought.

Conversion to business use. If you place property in service in a personal activity, you cannot claim depreciation. However, if you change the property's use to use in a business or income-producing activity, then you can begin to depreciate it at the time of the change. You place the property in service in the business or income-producing activity on the date of the change.

Example. You bought a home and used it as your personal home several years before you converted it to rental property. Although its specific use was personal and no depreciation was allowable, you placed the home in service when you began using it as your home. You can begin to claim depreciation in the year you converted it to rental property because its use changed to an income-producing use at that time.

Idle Property

Continue to claim a deduction for depreciation on property used in your business or for the production of income even if it is temporarily idle (not in use). For example, if you stop using a machine because there is a temporary lack of a market for a product made with that machine, continue to deduct depreciation on the machine.

Cost or Other Basis Fully Recovered

You stop depreciating property when you have fully recovered your cost or other basis. You recover your basis when your section 179 and allowed or allowable depreciation deductions equal your cost or investment in the property. See What Is the Basis of Your Depreciable Property, later.

Retired From Service

You stop depreciating property when you retire it from service, even if you have not fully recovered its cost or other basis. You retire property from service when you permanently withdraw it from use in a trade or business or from use in the production of income because of any of the following events.

 

• You sell or exchange the property.

• You convert the property to personal use.

• You abandon the property.

• You transfer the property to a supplies or scrap account.

• The property is destroyed.

 

CAUTION: If you included the property in a general asset account, see How Do You Use General Asset Accounts in chapter 4 for the rules that apply when you dispose of that property.

What Method Can You Use To Depreciate Your Property?

Terms you may need to know (see Glossary):

 

• Adjusted basis

• Basis

• Convention

• Exchange

• Fiduciary

• Grantor

• Intangible property

• Nonresidential real property

• Placed in service

• Related persons

• Residential rental property

• Salvage value

• Section 1245 property

• Section 1250 property

• Standard mileage rate

• Straight line method

• Unit-of-production method

• Useful life

 

You must use the Modified Accelerated Cost Recovery System (MACRS) to depreciate most property. MACRS is discussed in chapter 4.

You cannot use MACRS to depreciate the following property.

 

• Property you placed in service before 1987.

• Certain property owned or used in 1986.

• Intangible property.

• Films, video tapes, and recordings.

• Certain corporate or partnership property acquired in a nontaxable transfer.

• Property you elected to exclude from MACRS.

 

The following discussions describe the property listed above and explain what depreciation method should be used.

Property You Placed in Service Before 1987

You cannot use MACRS for property you placed in service before 1987 (except property you placed in service after July 31, 1986, if MACRS was elected). Property placed in service before 1987 must be depreciated under the methods discussed in Pub. 534.

For a discussion of when property is placed in service, see When Does Depreciation Begin and End, earlier.

Use of real property changed. You generally must use MACRS to depreciate real property that you acquired for personal use before 1987 and changed to business or income-producing use after 1986.

Improvements made after 1986. You must treat an improvement made after 1986 to property you placed in service before 1987 as separate depreciable property. Therefore, you can depreciate that improvement as separate property under MACRS if it is the type of property that otherwise qualifies for MACRS depreciation. For more information about improvements, see How Do You Treat Repairs and Improvements, later, and Additions and Improvements under Which Recovery Period Applies in chapter 4.

Property Owned or Used in 1986

You may not be able to use MACRS for property you acquired and placed in service after 1986 if any of the situations described below apply. If you cannot use MACRS, the property must be depreciated under the methods discussed in Pub. 534.

CAUTION: For the following discussions, do not treat property as owned before you placed it in service. If you owned property in 1986 but did not place it in service until 1987, you do not treat it as owned in 1986.

Personal property. You cannot use MACRS for personal property (section 1245 property) in any of the following situations.

 

1. You or someone related to you owned or used the property in 1986.

2. You acquired the property from a person who owned it in 1986 and as part of the transaction the user of the property did not change.

3. You lease the property to a person (or someone related to this person) who owned or used the property in 1986.

4. You acquired the property in a transaction in which:

 

a. The user of the property did not change, and

b. The property was not MACRS property in the hands of the person from whom you acquired it because of (2) or (3) above.

Real property. You generally cannot use MACRS for real property (section 1250 property) in any of the following situations.

 

• You or someone related to you owned the property in 1986.

• You lease the property to a person who owned the property in 1986 (or someone related to that person).

• You acquired the property in a like-kind exchange, involuntary conversion, or repossession of property you or someone related to you owned in 1986. MACRS applies only to that part of your basis in the acquired property that represents cash paid or unlike property given up. It does not apply to the carried-over part of the basis.

 

Exceptions. The rules above do not apply to the following.

 

1. Residential rental property or nonresidential real property.

2. Any property if, in the first tax year it is placed in service, the deduction under the Accelerated Cost Recovery System (ACRS) is more than the deduction under MACRS using the half-year convention. For information on how to figure depreciation under ACRS, see Pub. 534.

3. Property that was MACRS property in the hands of the person from whom you acquired it because of (2) above.

 

Related persons. For this purpose, the following are related persons.

 

1. An individual and a member of his or her family, including only a spouse, child, parent, brother, sister, half-brother, half-sister, ancestor, and lineal descendant.

2. A corporation and an individual who directly or indirectly owns more than 10% of the value of the outstanding stock of that corporation.

3. Two corporations that are members of the same controlled group.

4. A trust fiduciary and a corporation if more than 10% of the value of the outstanding stock is directly or indirectly owned by or for the trust or grantor of the trust.

5. The grantor and fiduciary, and the fiduciary and beneficiary, of any trust.

6. The fiduciaries of two different trusts, and the fiduciaries and beneficiaries of two different trusts, if the same person is the grantor of both trusts.

7. A tax-exempt educational or charitable organization and any person (or, if that person is an individual, a member of that person's family) who directly or indirectly controls the organization.

8. Two S corporations, and an S corporation and a regular corporation, if the same persons own more than 10% of the value of the outstanding stock of each corporation.

9. A corporation and a partnership if the same persons own both of the following.

 

a. More than 10% of the value of the outstanding stock of the corporation.

b. More than 10% of the capital or profits interest in the partnership.

 

10. The executor and beneficiary of any estate.

11. A partnership and a person who directly or indirectly owns more than 10% of the capital or profits interest in the partnership.

12. Two partnerships, if the same persons directly or indirectly own more than 10% of the capital or profits interest in each.

13. The related person and a person who is engaged in trades or businesses under common control. See section 52(a) and 52(b) of the Internal Revenue Code.

 

When to determine relationship. You must determine whether you are related to another person at the time you acquire the property.

A partnership acquiring property from a terminating partnership must determine whether it is related to the terminating partnership immediately before the event causing the termination. For this rule, a terminating partnership is one that sells or exchanges, within 12 months, 50% or more of its total interest in partnership capital or profits.

Constructive ownership of stock or partnership interest. To determine whether a person directly or indirectly owns any of the outstanding stock of a corporation or an interest in a partnership, apply the following rules.

 

1. Stock or a partnership interest directly or indirectly owned by or for a corporation, partnership, estate, or trust is considered owned proportionately by or for its shareholders, partners, or beneficiaries. However, for a partnership interest owned by or for a C corporation, this applies only to shareholders who directly or indirectly own 5% or more of the value of the stock of the corporation.

2. An individual is considered to own the stock or partnership interest directly or indirectly owned by or for the individual's family.

3. An individual who owns, except by applying rule (2), any stock in a corporation is considered to own the stock directly or indirectly owned by or for the individual's partner.

4. For purposes of rule (1), (2), or (3), stock or a partnership interest considered to be owned by a person under rule (1) is treated as actually owned by that person. However, stock or a partnership interest considered to be owned by an individual under rule (2) or (3) is not treated as owned by that individual for reapplying either rule (2) or (3) to make another person considered to be the owner of the same stock or partnership interest.

 

Intangible Property

Generally, if you can depreciate intangible property, you usually use the straight line method of depreciation. However, you can choose to depreciate certain intangible property under the income forecast method (discussed later).

CAUTION: You cannot depreciate intangible property that is a section 197 intangible or that otherwise does not meet all the requirements discussed earlier under What Property Can Be Depreciated.

Straight Line Method

This method lets you deduct the same amount of depreciation each year over the useful life of the property. To figure your deduction, first determine the adjusted basis, salvage value, and estimated useful life of your property. Subtract the salvage value, if any, from the adjusted basis. The balance is the total depreciation you can take over the useful life of the property.

Divide the balance by the number of years in the useful life. This gives you your yearly depreciation deduction. Unless there is a big change in adjusted basis or useful life, this amount will stay the same throughout the time you depreciate the property. If, in the first year, you use the property for less than a full year, you must prorate your depreciation deduction for the number of months in use.

Example. In April, Frank bought a patent for $5,100 that is not a section 197 intangible. He depreciates the patent under the straight line method, using a 17-year useful life and no salvage value. He divides the $5,100 basis by 17 years to get his $300 yearly depreciation deduction. He only used the patent for 9 months during the first year, so he multiplies $300 by 9/12 to get his deduction of $225 for the first year. Next year, Frank can deduct $300 for the full year.

Patents and copyrights. If you can depreciate the cost of a patent or copyright, use the straight line method over the useful life. The useful life of a patent or copyright is the lesser of the life granted to it by the government or the remaining life when you acquire it. However, if the patent or copyright becomes valueless before the end of its useful life, you can deduct in that year any of its remaining cost or other basis.

Computer software. Computer software is generally a section 197 intangible and cannot be depreciated if you acquired it in connection with the acquisition of assets constituting a business or a substantial part of a business.

However, computer software is not a section 197 intangible and can be depreciated, even if acquired in connection with the acquisition of a business, if it meets all of the following tests.

 

• It is readily available for purchase by the general public.

• It is subject to a nonexclusive license.

• It has not been substantially modified.

 

If the software meets the tests above, it may also qualify for the section 179 deduction and the special depreciation allowance, discussed later. If you can depreciate the cost of computer software, use the straight line method over a useful life of 36 months.

Tax-exempt use property subject to a lease. The useful life of computer software leased under a lease agreement entered into after March 12, 2004, to a tax-exempt organization, governmental unit, or foreign person or entity (other than a partnership), cannot be less than 125% of the lease term.

Certain created intangibles. You can amortize certain intangibles created on or after December 31, 2003, over a 15-year period using the straight line method and no salvage value, even though they have a useful life that cannot be estimated with reasonable accuracy. For example, amounts paid to acquire memberships or privileges of indefinite duration, such as a trade association membership, are eligible costs.

The following are not eligible.

 

• Any intangible asset acquired from another person.

• Created financial interests.

• Any intangible asset that has a useful life that can be estimated with reasonable accuracy.

• Any intangible asset that has an amortization period or limited useful life that is specifically prescribed or prohibited by the Code, regulations, or other published IRS guidance.

• Any amount paid to facilitate an acquisition of a trade or business, a change in the capital structure of a business entity, and certain other transactions.

 

You must also increase the 15-year safe harbor amortization period to a 25-year period for certain intangibles related to benefits arising from the provision, production, or improvement of real property. For this purpose, real property includes property that will remain attached to the real property for an indefinite period of time, such as roads, bridges, tunnels, pavements, and pollution control facilities.

Income Forecast Method

You can choose to use the income forecast method instead of the straight line method to depreciate the following depreciable intangibles.

 

• Motion picture films or video tapes.

• Sound recordings.

• Copyrights.

• Books.

• Patents.

 

Under the income forecast method, each year's depreciation deduction is equal to the cost of the property, multiplied by a fraction. The numerator of the fraction is the current year's net income from the property, and the denominator is the total income anticipated from the property through the end of the 10th taxable year following the taxable year the property is placed in service. For more information, see section 167(g) of the Internal Revenue Code.

Films, video tapes, and recordings. You cannot use MACRS for motion picture films, video tapes, and sound recordings. For this purpose, sound recordings are discs, tapes, or other phonorecordings resulting from the fixation of a series of sounds. You can depreciate this property using either the straight line method or the income forecast method.

Participations and residuals. You can include participations and residuals in the adjusted basis of the property for purposes of computing your depreciation deduction under the income forecast method. The participations and residuals must relate to income to be derived from the property before the end of the 10th taxable year after the property is placed in service. For this purpose, participations and residuals are defined as costs which by contract vary with the amount of income earned in connection with the property.

Instead of including these amounts in the adjusted basis of the property, you can deduct the costs in the taxable year that they are paid.

Videocassettes. If you are in the business of renting videocassettes, you can depreciate only those videocassettes bought for rental. If the videocassette has a useful life of one year or less, you can currently deduct the cost as a business expense.

Corporate or Partnership Property Acquired in a Nontaxable Transfer

MACRS does not apply to property used before 1987 and transferred after 1986 to a corporation or partnership (except property the transferor placed in service after July 31, 1986, if MACRS was elected) to the extent its basis is carried over from the property's adjusted basis in the transferor's hands. You must continue to use the same depreciation method as the transferor and figure depreciation as if the transfer had not occurred. However, if MACRS would otherwise apply, you can use it to depreciate the part of the property's basis that exceeds the carried-over basis.

The nontaxable transfers covered by this rule include the following.

 

• A distribution in complete liquidation of a subsidiary.

• A transfer to a corporation controlled by the transferor.

• An exchange of property solely for corporate stock or securities in a reorganization.

• A contribution of property to a partnership in exchange for a partnership interest.

• A partnership distribution of property to a partner.

 

Election To Exclude Property From MACRS

If you can properly depreciate any property under a method not based on a term of years, such as the unit-of-production method, you can elect to exclude that property from MACRS. You make the election by reporting your depreciation for the property on line 15 in Part II of Form 4562 and attaching a statement as described in the Instructions for Form 4562. You must make this election by the return due date (including extensions) for the tax year you place your 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 six months of the due date of the return (excluding extensions). Attach the election to the amended return and write "Filed pursuant to section 301.9100-2" on the election statement. File the amended return at the same address you filed the original return.

Use of standard mileage rate. If you use the standard mileage rate to figure your tax deduction for your business automobile, you are treated as having made an election to exclude the automobile from MACRS. See

 

• Abstract fees

• Adjusted basis

• Basis

• Exchange

• Fair market value

 

To figure your depreciation deduction, you must determine the basis of your property. To determine basis, you need to know the cost or other basis of your property.

Cost as Basis

The basis of property you buy is its cost plus amounts you paid for items such as sales tax (see Exception below), freight charges, and installation and testing fees. The cost includes the amount you pay in cash, debt obligations, other property, or services.

Exception. You can elect to deduct state and local general sales taxes instead of state and local income taxes as an itemized deduction on Schedule A (Form 1040). If you make that choice, you cannot include those sales taxes as part of your cost basis.

Assumed debt. If you buy property and assume (or buy subject to) an existing mortgage or other debt on the property, your basis includes the amount you pay for the property plus the amount of the assumed debt.

Example. You make a $20,000 down payment on property and assume the seller's mortgage of $120,000. Your total cost is $140,000, the cash you paid plus the mortgage you assumed.

Settlement costs. The basis of real property also includes certain fees and charges you pay in addition to the purchase price. These generally are shown on your settlement statement and include the following.

 

• Legal and recording fees.

• Abstract fees.

• Survey charges.

• Owner's title insurance.

• Amounts the seller owes that you agree to pay, such as back taxes or interest, recording or mortgage fees, charges for improvements or repairs, and sales commissions.

 

For fees and charges you cannot include in the basis of property, see Real Property in
Pub. 551.

Property you construct or build. If you construct, build, or otherwise produce property for use in your business, you may have to use the uniform capitalization rules to determine the basis of your property. For information about the uniform capitalization rules, see Pub. 551 and the regulations under section 263A of the Internal Revenue Code.

Other Basis

Other basis usually refers to basis that is determined by the way you received the property. For example, your basis is other than cost if you acquired the property in exchange for other property, as payment for services you performed, as a gift, or as an inheritance. If you acquired property in this or some other way, see Pub. 551 to determine your basis.

Property changed from personal use. If you held property for personal use and later use it in your business or income-producing activity, your depreciable basis is the lesser of the following.

 

1. The fair market value (FMV) of the property on the date of the change in use.

2. Your original cost or other basis adjusted as follows.

 

a. Increased by the cost of any permanent improvements or additions and other costs that must be added to basis.

b. Decreased by any deductions you claimed for casualty and theft losses and other items that reduced your basis.

Example. Several years ago, Nia paid $160,000 to have her home built on a lot that cost her $25,000. Before changing the property to rental use last year, she paid $20,000 for permanent improvements to the house and claimed a $2,000 casualty loss deduction for damage to the house. Land is not depreciable, so she includes only the cost of the house when figuring the basis for depreciation.

Nia's adjusted basis in the house when she changed its use was $178,000 ($160,000 + $20,000 - $2,000). On the same date, her property had an FMV of $180,000, of which $15,000 was for the land and $165,000 was for the house. The basis for depreciation on the house is the FMV on the date of change ($165,000), because it is less than her adjusted basis ($178,000).

Property acquired in a nontaxable transaction. Generally, if you receive property in a nontaxable exchange, the basis of the property you receive is the same as the adjusted basis of the property you gave up. Special rules apply in determining the basis and figuring the MACRS depreciation deduction and special depreciation allowance for property acquired in a like-kind exchange or involuntary conversion. See Like-kind exchanges and involuntary conversions under How Much Can You Deduct in chapter 3, and Figuring the Deduction for Property Acquired in a Nontaxable Exchange in chapter 4.

There are also special rules for determining the basis of MACRS property involved in a like-kind exchange or involuntary conversion when the property is contained in a general asset account. See How Do You Use General Asset Accounts in chapter 4.

Adjusted Basis

To find your property's basis for depreciation, you may have to make certain adjustments (increases and decreases) to the basis of the property for events occurring between the time you acquired the property and the time you placed it in service. These events could include the following.

 

• Installing utility lines.

• Paying legal fees for perfecting the title.

• Settling zoning issues.

• Receiving rebates.

• Incurring a casualty or theft loss.

 

For a discussion of adjustments to the basis of your property, see Adjusted Basis in Pub. 551.

If you depreciate your property under MACRS, you also may have to reduce your basis by certain deductions and credits with respect to the property. For more information, see What Is the Basis for Depreciation in chapter 4.

Basis adjustment for depreciation allowed or allowable. You must reduce the basis of property by the depreciation allowed or allowable, whichever is greater. Depreciation allowed is depreciation you actually deducted (from which you received a tax benefit). Depreciation allowable is depreciation you are entitled to deduct.

If you do not claim depreciation you are entitled to deduct, you must still reduce the basis of the property by the full amount of depreciation allowable.

If you deduct more depreciation than you should, you must reduce your basis by any amount deducted from which you received a tax benefit (the depreciation allowed).

How Do You Treat Repairs and Improvements?

If you improve depreciable property, you must treat the improvement as separate depreciable property. Improvement means an addition to or partial replacement of property that is a betterment to the property, restores the property, or adapts it to a new or different use. See section 1.263(a)-3 of the regulations.

You generally deduct the cost of repairing business property in the same way as any other business expense. However, if the cost is for a betterment to the property, to restore the property, or to adapt the property to a new or different use, you must treat it as an improvement and depreciate it.

Example. You repair a small section on one corner of the roof of a rental house. You deduct the cost of the repair as a rental expense. However, if you completely replace the roof, the new roof is an improvement because it is a restoration of the building. You depreciate the cost of the new roof.

Improvements to rented property. You can depreciate permanent improvements you make to business property you rent from someone else.

Do You Have To File Form 4562?

Terms you may need to know (see Glossary):

 

• Amortization

• Listed property

• Placed in service

• Standard mileage rate

 

Use Form 4562 to figure your deduction for depreciation and amortization. Attach Form 4562 to your tax return for the current tax year if you are claiming any of the following items.

 

• A section 179 deduction for the current year or a section 179 carryover from a prior year. See chapter 2 for information on the section 179 deduction.

• Depreciation for property placed in service during the current year.

• Depreciation on any vehicle or other listed property, regardless of when it was placed in service. See chapter 5 for information on listed property.

• A deduction for any vehicle if the deduction is reported on a form other than Schedule C (Form 1040) or Schedule C-EZ (Form 1040).

• Amortization of costs if the current year is the first year of the amortization period.

• Depreciation or amortization on any asset on a corporate income tax return (other than Form 1120S, U.S. Income Tax Return for an S Corporation) regardless of when it was placed in service.

 

CAUTION: You must submit a separate Form 4562 for each business or activity on your return for which a Form 4562 is required.

Table 1-1 presents an overview of the purpose of the various parts of Form 4562.

Employee. Do not use Form 4562 if you are an employee and you deduct job-related vehicle expenses using either actual expenses (including depreciation) or the standard mileage rate. Instead, use either Form 2106 or Form 2106-EZ. Use Form 2106-EZ if you are claiming the standard mileage rate and you are not reimbursed by your employer for any expenses.

How Do You Correct Depreciation Deductions?

If you deducted an incorrect amount of depreciation in any year, you may be able to make a correction by filing an amended return for that year. See Filing an Amended Return, next. If you are not allowed to make the correction on an amended return, you may be able to change your accounting method to claim the correct amount of depreciation. See Changing Your Accounting Method, later.

Filing an Amended Return

You can file an amended return to correct the amount of depreciation claimed for any property in any of the following situations.

 

• You claimed the incorrect amount because of a mathematical error made in any year.

• You claimed the incorrect amount because of a posting error made in any year.

• You have not adopted a method of accounting for property placed in service by you in tax years ending after December 29, 2003.

• You claimed the incorrect amount on property placed in service by you in tax years ending before December 30, 2003.

 

Adoption of accounting method defined. Generally, you adopt a method of accounting for depreciation by using a permissible method of determining depreciation when you file your first tax return, or by using the same impermissible method of determining depreciation in two or more consecutively filed tax returns.

For an exception to the 2-year rule, see Revenue Procedure 2016-29 on page 888 of Internal Revenue Bulletin 2016-21, available at http://www.irs.gov/irb/2016-21_IRB/ar13.html, as modified by Notice 2017-6 on page 422 of Revenue Bulletin 2017-3, available at http://www.irs.gov/irb/2017-03_IRB/ar10.html.

When to file. If an amended return is allowed, you must file it by the later of the following.

 

• 3 years from the date you filed your original return for the year in which you did not deduct the correct amount. A return filed before an unextended due date is considered filed on that due date.

• 2 years from the time you paid your tax for that year.

 

Changing Your Accounting Method

Generally, you must get IRS approval to change your method of accounting. You generally must file Form 3115, Application for Change in Accounting Method, to request a change in your method of accounting for depreciation.

The following are examples of a change in method of accounting for depreciation.

 

• A change from an impermissible method of determining depreciation for depreciable property, if the impermissible method was used in two or more consecutively filed tax returns.

• A change in the treatment of an asset from nondepreciable to depreciable or vice versa.

• A change in the depreciation method, period of recovery, or convention of a depreciable asset.

• A change from not claiming to claiming the special depreciation allowance if you did not make the election to not claim any special allowance.

• A change from claiming a 50% special depreciation allowance to claiming a 30% special depreciation allowance for qualified property (including property that is included in a class of property for which you elected a 30% special allowance instead of a 50% special allowance).

 

Changes in depreciation that are not a change in method of accounting (and may only be made on an amended return) include the following.

 

• An adjustment in the useful life of a depreciable asset for which depreciation is determined under section 167.

• A change in use of an asset in the hands of the same taxpayer.

• Making a late depreciation election or revoking a timely valid depreciation election (including the election not to deduct the special depreciation allowance). If you elected not to claim any special depreciation allowance, a change from not claiming to claiming the special depreciation allowance is a revocation of the election and is not an accounting method change. Generally, you must get IRS approval to make a late depreciation election or revoke a depreciation election. You must submit a request for a letter ruling to make a late election or revoke an election.

• Any change in the placed in service date of a depreciable asset.

 

See section 1.446-1(e)(2)(ii)(d) of the regulations for more information and examples.

IRS approval. If your change in method of accounting for depreciation is described in Revenue Procedure 2016-29, you may be able to get approval from the IRS to make that change under the automatic change request procedures generally covered in Revenue Procedure 2015-13 on page 419 of Internal Revenue Bulletin 2015-5. If you do not qualify to use the automatic procedures to get approval, you must use the advance consent request procedures generally covered in Revenue Procedure 2015-13. Also see the Instructions for Form 3115 for more information on getting approval, including lists of scope limitations and automatic accounting method changes.

Additional guidance. For additional guidance and special procedures for changing your accounting method, automatic change procedures, amending your return, and filing Form 3115, see Revenue Procedure 2015-13 on page 419 of Internal Revenue Bulletin 2015-5 and Revenue Procedure 2016-29 on page 888 of Internal Revenue Bulletin 2016-21, available at http://www.irs.gov/irb/2016-21_IRB/ar13.html.

Section 481(a) adjustment. If you file Form 3115 and change from an impermissible method to a permissible method of accounting for depreciation, you can make a section 481(a) adjustment for any unclaimed or excess amount of allowable depreciation. The adjustment is the difference between the total depreciation actually deducted for the property and the total amount allowable prior to the year of change. If no depreciation was deducted, the adjustment is the total depreciation allowable prior to the year of change. A negative section 481(a) adjustment results in a decrease in taxable income. It is taken into account in the year of change and is reported on your business tax returns as "other expenses." A positive section 481(a) adjustment results in an increase in taxable income. It is generally taken into account over 4 tax years and is reported on your business tax returns as "other income." However, you can elect to use a one-year adjustment period and report the adjustment in the year of change if the total adjustment is less than $50,000. Make the election by completing the appropriate line on Form 3115.

If you file a Form 3115 and change from one permissible method to another permissible method, the section 481(a) adjustment is zero.

2. Electing the Section 179 Deduction

Introduction

You can elect to recover all or part of the cost of certain qualifying property, up to a limit, by deducting it in the year you place the property in service. This is the section 179 deduction. You can elect the section 179 deduction instead of recovering the cost by taking depreciation deductions.

CAUTION: Estates and trusts cannot elect the section 179 deduction.

This chapter explains what property does and does not qualify for the section 179 deduction, what limits apply to the deduction (including special rules for partnerships and corporations), and how to elect it. It also explains when and how to recapture the deduction.

Useful Items

You may want to see:

Publication

 

Publication 537 Installment Sales

Publication 544 Sales and Other Dispositions of Assets

Publication 954 Tax Incentives for Distressed Communities

 

Form (and Instructions)

 

Form 4562 Depreciation and Amortization

Form 4797 Sales of Business Property

 

See chapter 6 for information about getting publications and forms.

What Property Qualifies?

Terms you may need to know (see Glossary):

 

• Adjusted basis

• Basis

• Class life

• Structural components

• Tangible property

 

To qualify for the section 179 deduction, your property must meet all the following requirements.

 

• It must be eligible property.

• It must be acquired for business use.

• It must have been acquired by purchase.

• It must not be property described later under What Property Does Not Qualify.

 

The following discussions provide information about these requirements and exceptions.

Eligible Property

To qualify for the section 179 deduction, your property must be one of the following types of depreciable property.

 

1. Tangible personal property.

2. Other tangible property (except buildings and their structural components) used as:

 

a. An integral part of manufacturing, production, or extraction, or of furnishing transportation, communications, electricity, gas, water, or sewage disposal services,

b. A research facility used in connection with any of the activities in (a) above, or

c. A facility used in connection with any of the activities in (a) for the bulk storage of fungible commodities.

 

3. Single purpose agricultural (livestock) or horticultural structures. See chapter 7 of Pub. 225 for definitions and information regarding the use requirements that apply to these structures.

4. Storage facilities (except buildings and their structural components) used in connection with distributing petroleum or any primary product of petroleum.

5. Off-the-shelf computer software.

6. Qualified real property (described below).

 

Tangible personal property. Tangible personal property is any tangible property that is not real property. It includes the following property.

 

• Machinery and equipment.

• Property contained in or attached to a building (other than structural components), such as refrigerators, grocery store counters, office equipment, printing presses, testing equipment, and signs.

• Gasoline storage tanks and pumps at retail service stations.

• Livestock, including horses, cattle, hogs, sheep, goats, and mink and other furbearing animals.

• Portable air conditioners or heaters placed in service by you in tax years beginning after 2015.

 

The treatment of property as tangible personal property for the section 179 deduction is not controlled by its treatment under local law. For example, property may not be tangible personal property for the deduction even if treated so under local law, and some property (such as fixtures) may be tangible personal property for the deduction even if treated as real property under local law.

Off-the-shelf computer software. Off-the-shelf computer software is qualifying property for purposes of the section 179 deduction. This is computer software that is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified. It includes any program designed to cause a computer to perform a desired function. However, a database or similar item is not considered computer software unless it is in the public domain and is incidental to the operation of otherwise qualifying software.

Qualified real property. You can elect to treat certain qualified real property you placed in service during the tax year as section 179 property. If this election is made, the term "section 179 property" will include any qualified real property that is:

 

• Qualified leasehold improvement property,

• Qualified restaurant property, or

• Qualified retail improvement property.

 

For more information, see Special rules for qualified section 179 real property, later.

Qualified leasehold improvement property. Generally, this is any improvement to an interior portion of a building that is nonresidential real property, provided all of the requirements discussed in chapter 4 under Qualified leasehold improvement property are met.

In addition, an improvement made by the lessor does not qualify as qualified leasehold improvement property to any subsequent owner unless it is acquired from the original lessor by reason of the lessor's death or in any of the following types of transactions.

 

1. A transaction to which section 381(a) applies,

2. A mere change in the form of conducting the trade or business so long as the property is retained in the trade or business as qualified leasehold improvement property and the taxpayer retains a substantial interest in the trade or business,

3. A like-kind exchange, involuntary conversion, or re-acquisition of real property to the extent that the basis in the property represents the carryover basis, or

4. Certain nonrecognition transactions to the extent that your basis in the property is determined by reference to the transferor's or distributor's basis in the property. Examples include the following.

 

a. A complete liquidation of a subsidiary.

b. A transfer to a corporation controlled by the transferor.

c. An exchange of property by a corporation solely for stock or securities in another corporation in a reorganization.

Qualified restaurant property. Qualified restaurant property is any section 1250 property that is a building or an improvement to a building placed in service during the tax year. Also, more than 50% of the building's square footage must be devoted to preparation of meals and seating for on-premise consumption of prepared meals.

Qualified retail improvement property. Generally, this is any improvement to an interior portion of nonresidential real property if it meets the following requirements.

 

1. The portion is open to the general public and is used in the retail trade or business of selling tangible property to the general public.

2. The improvement is placed in service more than 3 years after the date the building was first placed in service.

3. The expenses are not for the enlargement of the building, any elevator or escalator, any structural components benefiting a common area, or the internal structural framework of the building.

 

In addition, an improvement made by the lessor does not qualify as qualified retail improvement property to any subsequent owner unless it is acquired from the original lessor by reason of the lessor's death or in any of the following types of transactions.

 

1. A transaction to which section 381(a) applies,

2. A mere change in the form of conducting the trade or business so long as the property is retained in the trade or business as qualified leasehold improvement property and the taxpayer retains a substantial interest in the trade or business,

3. A like-kind exchange, involuntary conversion, or re-acquisition of real property to the extent that the basis in the property represents the carryover basis, or

4. Certain nonrecognition transactions to the extent that your basis in the property is determined by reference to the transferor's or distributor's basis in the property. Examples include the following.

 

a. A complete liquidation of a subsidiary.

b. A transfer to a corporation controlled by the transferor.

c. An exchange of property by a corporation solely for stock or securities in another corporation in a reorganization.

Property Acquired for Business Use

To qualify for the section 179 deduction, your property must have been acquired for use in your trade or business. Property you acquire only for the production of income, such as investment property, rental property (if renting property is not your trade or business), and property that produces royalties, does not qualify.

Partial business use. When you use property for both business and nonbusiness purposes, you can elect the section 179 deduction only if you use the property more than 50% for business in the year you place it in service. If you use the property more than 50% for business, multiply the cost of the property by the percentage of business use. Use the resulting business cost to figure your section 179 deduction.

Example. May Oak bought and placed in service an item of section 179 property costing $11,000. She used the property 80% for her business and 20% for personal purposes. The business part of the cost of the property is $8,800 (80% × $11,000).

Property Acquired by Purchase

To qualify for the section 179 deduction, your property must have been acquired by purchase. For example, property acquired by gift or inheritance does not qualify.

Property is not considered acquired by purchase in the following situations.

 

1. It is acquired by one component member of a controlled group from another component member of the same group.

2. Its basis is determined either--

 

a. In whole or in part by its adjusted basis in the hands of the person from whom it was acquired, or

b. Under the stepped-up basis rules for property acquired from a decedent.

 

3. It is acquired from a related person.

 

Related persons. Related persons are described under Related persons earlier. However, to determine whether property qualifies for the section 179 deduction, treat as an individual's family only his or her spouse, ancestors, and lineal descendants and substitute "50%" for "10%" each place it appears.

Example. Ken Larch is a tailor. He bought two industrial sewing machines from his father. He placed both machines in service in the same year he bought them. They do not qualify as section 179 property because Ken and his father are related persons. He cannot claim a section 179 deduction for the cost of these machines.

What Property Does Not Qualify?

Terms you may need to know (see Glossary):

 

• Basis

• Class life

 

Certain property does not qualify for the section 179 deduction. This includes the following.

Land and Improvements

Land and land improvements do not qualify as section 179 property. Land improvements include swimming pools, paved parking areas, wharves, docks, bridges, and fences.

Excepted Property

Even if the requirements explained earlier under What Property Qualifies are met, you cannot elect the section 179 deduction for the following property.

 

• Certain property you lease to others (if you are a noncorporate lessor).

• Certain property used predominantly to furnish lodging or in connection with the furnishing of lodging.

• Property used predominantly outside the United States, except property described in section 168(g)(4) of the Internal Revenue Code.

• Property used by certain tax-exempt organizations, except property used in connection with the production of income subject to the tax on unrelated trade or business income.

• Property used by governmental units or foreign persons or entities, except property used under a lease with a term of less than 6 months.

 

Leased property. Generally, you cannot claim a section 179 deduction based on the cost of property you lease to someone else. This rule does not apply to corporations. However, you can claim a section 179 deduction for the cost of the following property.

 

1. Property you manufacture or produce and lease to others.

2. Property you purchase and lease to others if both the following tests are met.

 

a. The term of the lease (including options to renew) is less than 50% of the property's class life.

b. For the first 12 months after the property is transferred to the lessee, the total business deductions you are allowed on the property (other than rents and reimbursed amounts) are more than 15% of the rental income from the property.

Property used for lodging. Generally, you cannot claim a section 179 deduction for property used predominantly to furnish lodging or in connection with the furnishing of lodging. However, this does not apply to the following types of property.

 

• Nonlodging commercial facilities that are available to those not using the lodging facilities on the same basis as they are available to those using the lodging facilities.

• Property used by a hotel or motel in connection with the trade or business of furnishing lodging where the predominant portion of the accommodations is used by transients.

• Any certified historic structure to the extent its basis is due to qualified rehabilitation expenditures.

• Any energy property.

 

Energy property. Energy property is property that meets the following requirements.

 

1. It is one of the following types of property.

 

a. Equipment that uses solar energy to generate electricity, to heat or cool a structure, to provide hot water for use in a structure, or to provide solar process heat, except for equipment used to generate energy to heat a swimming pool.

b. Equipment placed in service after December 31, 2005, and before January 1, 2017, that uses solar energy to illuminate the inside of a structure using fiber-optic distributed sunlight.

c. Equipment used to produce, distribute, or use energy derived from a geothermal deposit. For electricity generated by geothermal power, this includes equipment up to (but not including) the electrical transmission stage.

d. Qualified fuel cell property or qualified microturbine property placed in service after December 31, 2005, and before January 1, 2017.

 

2. The construction, reconstruction, or erection of the property must be completed by you.

3. For property you acquire, the original use of the property must begin with you.

4. The property must meet the performance and quality standards, if any, prescribed by Income Tax Regulations in effect at the time you get the property.

 

For periods before February 14, 2008, energy property does not include any property that is public utility property as defined by section 46(f)(5) of the Internal Revenue Code (as in effect on November 4, 1990).

How Much Can You Deduct?

Terms you may need to know (see Glossary):

 

• Adjusted basis

• Basis

• Placed in service

 

Your section 179 deduction is generally the cost of the qualifying property. However, the total amount you can elect to deduct under section 179 is subject to a dollar limit and a business income limit. These limits apply to each taxpayer, not to each business. However, see Married Individuals under Dollar Limits, later. For a passenger automobile, the total section 179 deduction and depreciation deduction are limited. See Do the Passenger Automobile Limits Apply in chapter 5.

If you deduct only part of the cost of qualifying property as a section 179 deduction, you can generally depreciate the cost you do not deduct.

Trade-in of other property. If you buy qualifying property with cash and a trade-in, its cost for purposes of the section 179 deduction includes only the cash you paid.

Example. Silver Leaf, a retail bakery, traded two ovens having a total adjusted basis of $680 for a new oven costing $1,320. They received an $800 trade-in allowance for the old ovens and paid $520 in cash for the new oven. The bakery also traded a used van with an adjusted basis of $4,500 for a new van costing $9,000. They received a $4,800 trade-in allowance on the used van and paid $4,200 in cash for the new van.

Only the portion of the new property's basis paid by cash qualifies for the section 179 deduction. Therefore, Silver Leaf's qualifying costs for the section 179 deduction are $4,720 ($520 + $4,200).

Dollar Limits

The total amount you can elect to deduct under section 179 for most property placed in service in tax years beginning in 2016 generally cannot be more than $500,000. If you acquire and place in service more than one item of qualifying property during the year, you can allocate the section 179 deduction among the items in any way, as long as the total deduction is not more than $500,000. You do not have to claim the full $500,000.

TIP: The amount you can elect to deduct is not affected if you place qualifying property in service in a short tax year or if you place qualifying property in service for only a part of a 12-month tax year.

CAUTION: After you apply the dollar limit to determine a tentative deduction, you must apply the business income limit (described later) to determine your actual section 179 deduction.

Example. In 2016, you bought and placed in service $500,000 in machinery and a $25,000 circular saw for your business. You elect to deduct $475,000 for the machinery and the entire $25,000 for the saw, a total of $500,000. This is the maximum amount you can deduct. Your $25,000 deduction for the saw completely recovered its cost. Your basis for depreciation is zero. The basis for depreciation of your machinery is $25,000. You figure this by subtracting your $475,000 section 179 deduction for the machinery from the $500,000 cost of the machinery.

Situations affecting dollar limit. Under certain circumstances, the general dollar limits on the section 179 deduction may be reduced or increased or there may be additional dollar limits. The general dollar limit is affected by any of the following situations.

 

• The cost of your section 179 property placed in service exceeds $2,010,000.

• Your business is an enterprise zone business.

• You placed in service a sport utility or certain other vehicles.

• You are married filing a joint or separate return.

 

Costs Exceeding $2,010,000

If the cost of your qualifying section 179 property placed in service in a year is more than $2,010,000, you generally must reduce the dollar limit (but not below zero) by the amount of cost over $2,010,000. If the cost of your section 179 property placed in service during 2016 is $2,510,000 or more, you cannot take a section 179 deduction.

Example. In 2016, Jane Ash placed in service machinery costing $2,110,000. This cost is $100,000 more than $2,010,000, so she must reduce her dollar limit to $400,000 ($500,000 - $100,000).

Enterprise Zone Businesses

An increased section 179 deduction is available to enterprise zone businesses for qualified zone property placed in service during the tax year, in an empowerment zone. For more information including the definitions of "enterprise zone business" and "qualified zone property," see sections 1397A, 1397C, and 1397D of the Internal Revenue Code.

The dollar limit on the section 179 deduction is increased by the smaller of:

 

• $35,000, or

• The cost of section 179 property that is also qualified zone property placed in service before January 1, 2017 (including such property placed in service by your spouse, even if you are filing a separate return).

 

Note. You take into account only 50% (instead of 100%) of the cost of qualified zone property placed in service in a year when figuring the reduced dollar limit for costs exceeding $2,010,000 (explained earlier).

Sport Utility and Certain Other Vehicles

You cannot elect to expense more than $25,000 of the cost of any heavy sport utility vehicle (SUV) and certain other vehicles placed in service during the tax year. This rule applies to any 4-wheeled vehicle primarily designed or used to carry passengers over public streets, roads, or highways, that is rated at more than 6,000 pounds gross vehicle weight and not more than 14,000 pounds gross vehicle weight. However, the $25,000 limit does not apply to any vehicle:

 

• Designed to seat more than nine passengers behind the driver's seat,

• Equipped with a cargo area (either open or enclosed by a cap) of at least six feet in interior length that is not readily accessible from the passenger compartment, or

• That has an integral enclosure fully enclosing the driver compartment and load carrying device, does not have seating rearward of the driver's seat, and has no body section protruding more than 30 inches ahead of the leading edge of the windshield.

 

Married Individuals

If you are married, how you figure your section 179 deduction depends on whether you file jointly or separately. If you file a joint return, you and your spouse are treated as one taxpayer in determining any reduction to the dollar limit, regardless of which of you purchased the property or placed it in service. If you and your spouse file separate returns, you are treated as one taxpayer for the dollar limit, including the reduction for costs over $2,010,000. You must allocate the dollar limit (after any reduction) between you equally, unless you both elect a different allocation. If the percentages elected by each of you do not total 100%, 50% will be allocated to each of you.

Example. Jack Elm is married. He and his wife file separate returns. Jack bought and placed in service $2,010,000 of qualified farm machinery in 2016. His wife has her own business, and she bought and placed in service $30,000 of qualified business equipment. Their combined dollar limit is $470,000. This is because they must figure the limit as if they were one taxpayer. They reduce the $500,000 dollar limit by the $30,000 excess of their costs over $2,010,000.

They elect to allocate the $470,000 dollar limit as follows.

 

• $446,500 ($470,000 × 95%) to Mr. Elm's machinery.

• $23,500 ($470,000 × 5%) to Mrs. Elm's equipment.

 

If they did not make an election to allocate their costs in this way, they would have to allocate $235,000 ($470,000 × 50%) to each of them.

Joint return after filing separate returns. If you and your spouse elect to amend your separate returns by filing a joint return after the due date for filing your return, the dollar limit on the joint return is the lesser of the following amounts.

 

• The dollar limit (after reduction for any cost of section 179 property over $2,010,000).

• The total cost of section 179 property you and your spouse elected to expense on your separate returns.

 

Example. The facts are the same as in the previous example except that Jack elected to deduct $30,000 of the cost of section 179 property on his separate return and his wife elected to deduct $2,000. After the due date of their returns, they file a joint return. Their dollar limit for the section 179 deduction is $32,000. This is the lesser of the following amounts.

 

• $470,000--The dollar limit less the cost of section 179 property over $2,010,000.

• $32,000--The total they elected to expense on their separate returns.

 

Business Income Limit

The total cost you can deduct each year after you apply the dollar limit is limited to the taxable income from the active conduct of any trade or business during the year. Generally, you are considered to actively conduct a trade or business if you meaningfully participate in the management or operations of the trade or business.

Any cost not deductible in one year under section 179 because of this limit can be carried to the next year. Special rules apply to a deduction of qualified section 179 real property that is placed in service by you in tax years beginning before 2016 and disallowed because of the business income limit. See Special rules for qualified section 179 real property under Carryover of disallowed deduction, later.

Taxable income. In general, figure taxable income for this purpose by totaling the net income and losses from all trades and businesses you actively conducted during the year. Net income or loss from a trade or business includes the following items.

 

• Section 1231 gains (or losses).

• Interest from working capital of your trade or business.

• Wages, salaries, tips, or other pay earned as an employee.

 

For information about section 1231 gains and losses, see chapter 3 in Pub. 544.

In addition, figure taxable income without regard to any of the following.

 

• The section 179 deduction.

• The self-employment tax deduction.

• Any net operating loss carryback or carryforward.

• Any unreimbursed employee business expenses.

 

Two different taxable income limits. In addition to the business income limit for your section 179 deduction, you may have a taxable income limit for some other deduction. You may have to figure the limit for this other deduction taking into account the section 179 deduction. If so, complete the following steps.

 -------------------------------------------------------

 

 Step                        Action

 

 -------------------------------------------------------

 

 1        Figure taxable income without the section 179

 

          deduction or the other deduction.

 

 -------------------------------------------------------

 

 2        Figure a hypothetical section 179 deduction

 

          using the taxable income figured in Step 1.

 

 -------------------------------------------------------

 

 3        Subtract the hypothetical section 179

 

          deduction figured in Step 2 from the taxable

 

          income figured in Step 1.

 

 -------------------------------------------------------

 

 4        Figure a hypothetical amount for the other

 

          deduction using the amount figured in Step 3

 

          as taxable income.

 

 -------------------------------------------------------

 

 5        Subtract the hypothetical other deduction

 

          figured in Step 4 from the taxable income

 

          figured in Step 1.

 

 -------------------------------------------------------

 

 6        Figure your actual section 179 deduction using

 

          the taxable income figured in Step 5.

 

 -------------------------------------------------------

 

 7        Subtract your actual section 179 deduction

 

          figured in Step 6 from the taxable income

 

          figured in Step 1.

 

 -------------------------------------------------------

 

 8        Figure your actual other deduction using the

 

          taxable income figured in Step 7.

 

 -------------------------------------------------------

 

 

Example. On February 1, 2016, the XYZ corporation purchased and placed in service qualifying section 179 property that cost $500,000. It elects to expense the entire $500,000 cost under section 179. In June, the corporation gave a charitable contribution of $10,000. A corporation's limit on charitable contributions is figured after subtracting any section 179 deduction. The business income limit for the section 179 deduction is figured after subtracting any allowable charitable contributions. XYZ's taxable income figured without the section 179 deduction or the deduction for charitable contributions is $520,000. XYZ figures its section 179 deduction and its deduction for charitable contributions as follows.

Step 1 -- Taxable income figured without either deduction is $520,000.

Step 2 -- Using $520,000 as taxable income, XYZ's hypothetical section 179 deduction is $500,000.

Step 3 -- $20,000 ($520,000 - $500,000).

Step 4 -- Using $20,000 (from Step 3) as taxable income, XYZ's hypothetical charitable contribution (limited to 10% of taxable income) is $2,000.

Step 5 -- $518,000 ($520,000 - $2,000).

Step 6 -- Using $518,000 (from Step 5) as taxable income, XYZ figures the actual section 179 deduction. Because the taxable income is at least $500,000, XYZ can take a $500,000 section 179 deduction.

Step 7 -- $20,000 ($520,000 - $500,000).

Step 8 -- Using $20,000 (from Step 7) as taxable income, XYZ's actual charitable contribution (limited to 10% of taxable income) is $2,000.

Carryover of disallowed deduction. You can carry over for an unlimited number of years the cost of any section 179 property you elected to expense but were unable to because of the business income limit. This disallowed deduction amount is shown on line 13 of Form 4562. You use the amount you carry over to determine your section 179 deduction in the next year. Enter that amount on line 10 of your Form 4562 for the next year.

If you place more than one property in service in a year, you can select the properties for which all or a part of the costs will be carried forward. Your selections must be shown in your books and records. For this purpose, treat section 179 costs allocated from a partnership or an S corporation as one item of section 179 property. If you do not make a selection, the total carryover will be allocated equally among the properties you elected to expense for the year.

If costs from more than one year are carried forward to a subsequent year in which only part of the total carryover can be deducted, you must deduct the costs being carried forward from the earliest year first.

Special rules for qualified section 179 real property. You can carry over to 2017 a 2016 deduction attributable to qualified section 179 real property that you placed in service in tax years beginning after 2015 and that you elected to expense but were unable to take because of the business income limitation. See Carryover of disallowed deduction, above. However, a 2015 deduction (any such 2014 carryover amounts not deducted in 2015, plus any 2015 disallowed amounts) attributable to qualified section 179 real property that you elected to expense but were unable to take because of the business income limitation cannot be carried over to 2016. Instead, these amounts are treated as property placed in service on the first day of 2015 for purposes of computing depreciation (including the special depreciation allowance, if applicable). See section 179(f) of the Internal Revenue Code, as in effect before section 124(c)(2) of the PATH Act, for more information. Also see, Notice 2013-59, section 5 of Revenue Procedure 2015-48, and sections 2 and 3 of Revenue Procedure 2016-48. You can find Notice 2013-59 at http://www.irs.gov/irb/2013-40_IRB/ar14.html, Revenue Procedure 2015-48 at http://www.irs.gov/irb/2015-40_IRB/ar13.html, and Revenue Procedure 2016-48 at http://www.irs.gov/irb/2016-37_IRB/ar10.html. Also, see Election for certain qualified section 179 real property, later, for information on how to make this election.

TIP: If there is a sale or other disposition of your property (including a transfer at death) before you can use the full amount of any outstanding carryover of your disallowed section 179 deduction, neither you nor the new owner can deduct any of the unused amount. Instead, you must add it back to the property's basis.

Partnerships and Partners

The section 179 deduction limits apply both to the partnership and to each partner. The partnership determines its section 179 deduction subject to the limits. It then allocates the deduction among its partners.

Each partner adds the amount allocated from partnerships (shown on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc.) to his or her nonpartnership section 179 costs and then applies the dollar limit to this total. To determine any reduction in the dollar limit for costs over $2,010,000, the partner does not include any of the cost of section 179 property placed in service by the partnership. After the dollar limit (reduced for any nonpartnership section 179 costs over $2,010,000) is applied, any remaining cost of the partnership and nonpartnership section 179 property is subject to the business income limit.

Partnership's taxable income. For purposes of the business income limit, figure the partnership's taxable income by adding together the net income and losses from all trades or businesses actively conducted by the partnership during the year. See the Instructions for Form 1065 for information on how to figure partnership net income (or loss). However, figure taxable income without regard to credits, tax-exempt income, the section 179 deduction, and guaranteed payments under section 707(c) of the Internal Revenue Code.

Partner's share of partnership's taxable income. For purposes of the business income limit, the taxable income of a partner engaged in the active conduct of one or more of a partnership's trades or businesses includes his or her allocable share of taxable income derived from the partnership's active conduct of any trade or business.

Example. In 2016, Beech Partnership placed in service section 179 property with a total cost of $2,035,000. The partnership must reduce its dollar limit by $25,000 ($2,035,000 - $2,010,000). Its maximum section 179 deduction is $475,000 ($500,000 - $25,000), and it elects to expense that amount. The partnership's taxable income from the active conduct of all its trades or businesses for the year was $600,000, so it can deduct the full $475,000. It allocates $40,000 of its section 179 deduction and $50,000 of its taxable income to Dean, one of its partners.

In addition to being a partner in Beech Partnership, Dean is also a partner in the Cedar Partnership, which allocated to him a $30,000 section 179 deduction and $35,000 of its taxable income from the active conduct of its business. He also conducts a business as a sole proprietor and, in 2016, placed in service in that business qualifying section 179 property costing $55,000. He had a net loss of $5,000 from that business for the year.

Dean does not have to include section 179 partnership costs to figure any reduction in his dollar limit, so his total section 179 costs for the year are not more than $2,010,000 and his dollar limit is not reduced. His maximum section 179 deduction is $500,000. He elects to expense all of the $70,000 in section 179 deductions allocated from the partnerships ($40,000 from Beech Partnership plus $30,000 from Cedar Partnership), plus $55,000 of his sole proprietorship's section 179 costs, and notes that information in his books and records. However, his deduction is limited to his business taxable income of $80,000 ($50,000 from Beech Partnership, plus $35,000 from Cedar Partnership minus $5,000 loss from his sole proprietorship). He carries over $45,000 ($125,000 - $80,000) of the elected section 179 costs to 2017. He allocates the carryover amount to the cost of section 179 property placed in service in his sole proprietorship, and notes that allocation in his books and records.

Different tax years. For purposes of the business income limit, if the partner's tax year and that of the partnership differ, the partner's share of the partnership's taxable income for a tax year is generally the partner's distributive share for the partnership tax year that ends with or within the partner's tax year.

Example. John and James Oak are equal partners in Oak Partnership. Oak Partnership uses a tax year ending January 31. John and James both use a tax year ending December 31. For its tax year ending January 31, 2016, Oak Partnership's taxable income from the active conduct of its business is $80,000, of which $70,000 was earned during 2015. John and James each include $40,000 (each partner's entire share) of partnership taxable income in computing their business income limit for the 2016 tax year.

Adjustment of partner's basis in partnership. A partner must reduce the basis of his or her partnership interest by the total amount of section 179 expenses allocated from the partnership even if the partner cannot currently deduct the total amount. If the partner disposes of his or her partnership interest, the partner's basis for determining gain or loss is increased by any outstanding carryover of disallowed section 179 expenses allocated from the partnership.

Adjustment of partnership's basis in section 179 property. The basis of a partnership's section 179 property must be reduced by the section 179 deduction elected by the partnership. This reduction of basis must be made even if a partner cannot deduct all or part of the section 179 deduction allocated to that partner by the partnership because of the limits.

S Corporations

Generally, the rules that apply to a partnership and its partners also apply to an S corporation and its shareholders. The deduction limits apply to an S corporation and to each shareholder. The S corporation allocates its deduction to the shareholders who then take their section 179 deduction subject to the limits.

Figuring taxable income for an S corporation. To figure taxable income (or loss) from the active conduct by an S corporation of any trade or business, you total the net income and losses from all trades or businesses actively conducted by the S corporation during the year.

To figure the net income (or loss) from a trade or business actively conducted by an S corporation, you take into account the items from that trade or business that are passed through to the shareholders and used in determining each shareholder's tax liability. However, you do not take into account any credits, tax-exempt income, the section 179 deduction, and deductions for compensation paid to shareholder-employees. For purposes of determining the total amount of S corporation items, treat deductions and losses as negative income. In figuring the taxable income of an S corporation, disregard any limits on the amount of an S corporation item that must be taken into account when figuring a shareholder's taxable income.

Other Corporations

A corporation's taxable income from its active conduct of any trade or business is its taxable income figured with the following changes.

 

1. It is figured before deducting the section 179 deduction, any net operating loss deduction, and special deductions (as reported on the corporation's income tax return).

2. It is adjusted for items of income or deduction included in the amount figured in 1, above, not derived from a trade or business actively conducted by the corporation during the tax year.

 

How Do You Elect the Deduction?

Terms you may need to know (see Glossary):

 

• Listed property

• Placed in service

 

You elect to take the section 179 deduction by completing Part I of Form 4562.

CAUTION: If you elect the deduction for listed property (described in chapter 5), complete Part V of Form 4562 before completing Part I.

For property placed in service in 2016, file Form 4562 with either of the following.

 

• Your original 2016 tax return, whether or not you file it timely.

• An amended return for 2016 filed within the time prescribed by law. An election made on an amended return must specify the item of section 179 property to which the election applies and the part of the cost of each such item to be taken into account. The amended return also must include any resulting adjustments to taxable income.

 

RECORDS: You must keep records that show the specific identification of each piece of qualifying section 179 property. These records must show how you acquired the property, the person you acquired it from, and when you placed it in service.

Election for certain qualified section 179 real property. You can elect to expense certain qualified real property that you placed in service as section 179 property for tax years beginning in 2016. If you elect to treat this property as section 179 property, you must elect the application of the special rules for qualified real property described in section 179(f) of the Internal Revenue Code.

To make the election, attach a statement indicating you are "electing the application of section 179(f) of the Internal Revenue Code" with either of the following.

 

• Your original 2016 tax return, whether or not you file it timely.

• An amended return for 2016 filed within the time prescribed by law. The amended return must also include any adjustments to taxable income.

 

The statement should indicate your election to expense certain qualified real property under section 179(f) on your return. It must specify one or more of the three types of qualified property (described under Qualified real property) to which the election applies, the cost of each such type, and the portion of the cost of each such property to be taken into account. Also, report this on line 6 of Form 4562.

Revoking an election. An election (or any specification made in the election) to take a section 179 deduction for 2016 can be revoked without IRS approval by filing an amended return. The amended return must be filed within the time prescribed by law. The amended return also must include any resulting adjustments to taxable income. Once made, the revocation is irrevocable.

When Must You Recapture the Deduction?

Terms you may need to know (see Glossary):

 

• Disposition

• Exchange

• Recapture

• Recovery period

• Section 1245 property

 

You may have to recapture the section 179 deduction if, in any year during the property's recovery period, the percentage of business use drops to 50% or less. In the year the business use drops to 50% or less, you include the recapture amount as ordinary income in Part IV of Form 4797. You also increase the basis of the property by the recapture amount. Recovery periods for property are discussed under Which Recovery Period Applies in chapter 4.

CAUTION: If you sell, exchange, or otherwise dispose of the property, do not figure the recapture amount under the rules explained in this discussion. Instead, use the rules for recapturing depreciation explained in chapter 3 of Pub. 544 under Section 1245 Property. For qualified real property (described earlier), see Notice 2013-59 for determining the portion of the gain that is attributable to section 1245 property upon the sale or other disposition of qualified real property. You can find Notice 2013-59 at http://www.irs.gov/irb/2013-40_IRB/ar14.html.

CAUTION: If the property is listed property (described in chapter 5), do not figure the recapture amount under the rules explained in this discussion when the percentage of business use drops to 50% or less. Instead, use the rules for recapturing excess depreciation in chapter 5 under What Is the Business-Use Requirement.

Figuring the recapture amount. To figure the amount to recapture, take the following steps.

 

1. Figure the depreciation that would have been allowable on the section 179 deduction you claimed. Begin with the year you placed the property in service and include the year of recapture.

2. Subtract the depreciation figured in (1) from the section 179 deduction you claimed. The result is the amount you must recapture.

 

Example. In January 2014, Paul Lamb, a calendar year taxpayer, bought and placed in service section 179 property costing $10,000. The property is not listed property. The property is 3-year property. He elected a $5,000 section 179 deduction for the property and also elected not to claim a special depreciation allowance. He used the property only for business in 2014 and 2015. In 2016, he used the property 40% for business and 60% for personal use. He figures his recapture amount as follows.

 Section 179 deduction claimed (2014)              $5,000.00

 

 Minus: Allowable depreciation using Table A-1

 

    (instead of section 179 deduction):

 

 2014                                 $1,666.50

 

 2015                                  2,222.50

 

 2016 ($740.50 × 40% (business))         296.20     4,185.20

 

                                      ---------    ---------

 

 2016 -- Recapture amount                            $814.80

 

                                                   =========

 

 

Paul must include $814.80 in income for 2016.

CAUTION: If any qualified zone property placed in service during the year ceases to be used in an empowerment zone by an enterprise zone business in a later year, the benefit of the increased section 179 deduction must be reported as other income on your return.

3. Claiming the Special Depreciation Allowance

Introduction

You can take a special depreciation allowance to recover part of the cost of qualified property (defined next), placed in service during the tax year. The allowance applies only for the first year you place the property in service. For qualified property placed in service in 2016, you can take an additional 50% special allowance. The allowance is an additional deduction you can take after any section 179 deduction and before you figure regular depreciation under MACRS for the year you place the property in service.

This chapter explains what is qualified property. It also includes rules regarding how to figure an allowance, how to elect not to claim an allowance, and when you must recapture an allowance.

TIP: Corporations can elect to accelerate certain minimum tax credits in lieu of claiming the special depreciation allowance for eligible qualified property. See Election to Accelerate Certain Credits in Lieu of the Special Depreciation Allowance, later.

See chapter 6 for information about getting publications and forms.

What Is Qualified Property?

Terms you may need to know (see Glossary):

 

• Business/investment use

• Improvement

• Nonresidential real property

• Placed in service

• Residential rental property

• Structural components

 

Your property is qualified property if it is one of the following.

 

• Qualified reuse and recycling property.

• Qualified second generation biofuel plant property.

• Certain qualified property placed in service before January 1, 2020.

• Certain plants bearing fruits and nuts.

 

The following discussions provide information about the types of qualified property listed above for which you can take the special depreciation allowance.

Qualified Reuse and Recycling Property

You can take a 50% special depreciation allowance for qualified reuse and recycling property. Qualified reuse and recycling property is any machinery or equipment (not including buildings or real estate), along with any appurtenance, that is used exclusively to collect, distribute, or recycle qualified reuse and recyclable materials (as defined in section 168(m)(3)(B) of the Internal Revenue Code). Qualified reuse and recycling property also includes software necessary to operate such equipment. The property must meet the following requirements.

 

• The property must be depreciated under MACRS.

• The property must have a useful life of at least 5 years.

• The original use of the property must begin with you after August 31, 2008.

• You must have acquired the property by purchase (as discussed under Property Acquired by Purchase in chapter 2) after August 31, 2008, with no binding written contract for the acquisition in effect before September 1, 2008.

• The property must be placed in service for use in your trade or business after August 31, 2008.

 

Excepted Property

Qualified reuse and recycling property does not include any of the following.

 

• Any rolling stock or other equipment used to transport reuse or recyclable materials.

• Property required to be depreciated using the Alternative Depreciation System (ADS). For other property required to be depreciated using ADS, see Required use of ADS under Which Depreciation System (GDS or ADS) Applies in chapter 4.

• Other bonus depreciation property to which section 168(k) of the Internal Revenue Code applies.

• Property for which you elected not to claim any special depreciation allowance (discussed later).

• Property placed in service and disposed of in the same tax year.

• Property converted from business use to personal use in the same tax year acquired. Property converted from personal use to business use in the same or later tax year may be qualified reuse and recycling property.

 

Qualified Second Generation Biofuel Plant Property

You can take a 50% special depreciation allowance for qualified second generation biofuel plant property (as defined in section 40(b)(6)(E) of the Internal Revenue Code). The property must meet the following requirements.

 

1. The property is used in the United States solely to produce second generation biofuel.

2. The original use of the property must begin with you after December 20, 2006.

3. You must have acquired the property by purchase (as discussed under Property Acquired by Purchase in chapter 2) after December 20, 2006, with no binding written contract for acquisition in effect before December 21, 2006.

4. The property must be placed in service for use in your trade or business or for the production of income before January 1, 2017.

 

Special Rules

Sale-leaseback. If you sold qualified second generation biofuel plant property you placed in service after October 3, 2008, and leased it back within 3 months after you originally placed it in service, the property is treated as originally placed in service no earlier than the date it is used by you under the leaseback.

The property will not qualify for the special allowance if the lessee or a related person to the lessee or lessor had a written binding contract in effect for the acquisition of the property before December 21, 2006.

Syndicated leasing transactions. If qualified second generation biofuel plant property is originally placed in service by a lessor after October 3, 2008, the property is sold within 3 months of the date it was placed in service, and the user of the property does not change, then the property is treated as originally placed in service by the taxpayer no earlier than the date of the last sale.

Multiple units of property subject to the same lease will be treated as originally placed in service no earlier than the date of sale if the property is sold within 3 months after the final unit is placed in service and the period between the times the first and last units are placed in service does not exceed 12 months.

Excepted Property

Qualified second generation biofuel plant property does not include any of the following.

 

• Property placed in service and disposed of in the same tax year.

• Property converted from business use to personal use in the same tax year it is acquired. Property converted from personal use to business use in the same or later tax year may be qualified second generation biofuel plant property.

• Property required to be depreciated using the Alternative Depreciation System (ADS). For other property required to be depreciated using ADS, see Required use of ADS under Which Depreciation System (GDS or ADS) Applies in chapter 1.

• Property any portion of which is financed with the proceeds of any obligation the interest on which is exempt from tax under section 103 of the Internal Revenue Code.

• Property for which you elected not to claim any special depreciation allowance (discussed later).

• Property for which a deduction was taken under section 179C for certain qualified refinery property.

• Other bonus depreciation property to which section 168(k) of the Internal Revenue Code applies.

 

Certain Qualified Property Placed in Service Before January 1, 2020

You can take a 50% special depreciation deduction allowance for certain qualified property placed in service before January 1, 2020. Your property is qualified property if it meets the following requirements.

 

1. It is one of the following types of property.

 

a. Tangible property depreciated under MACRS with a recovery period of 20 years or less.

b. Water utility property depreciated under MACRS.

c. Computer software that is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified. (The cost of some computer software is treated as part of the cost of hardware and is depreciated under MACRS.)

d. Qualified improvement property depreciated under MACRS (defined under Qualified improvement property, later).

 

2. The property must also be placed in service before January 1, 2020 (or before January 1, 2021, for certain property with a long production period and for certain aircraft). See Long Production Period Property and Noncommercial Aircraft, later.

3. The original use of the property must begin with you.

4. It is not excepted property (explained later in Excepted property).

 

Qualified improvement property. Generally, this is any improvement to an interior part of a building that is nonresidential real property. The improvement is placed in service after the date the building is first placed in service and is section 1250 property. See chapter 3 in Pub. 544, Sales and Other Dispositions of Assets, for the definition of section 1250 property.

However, a qualified 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.

• The internal structural framework of the building.

 

Long Production Period Property

To be qualified property, long production period property must meet the following requirements.

 

• It must meet the requirements in (1)-(4).

• The property has a recovery period of at least 10 years or is transportation property. Transportation property is tangible personal property used in the trade or business of transporting persons or property.

• The property is subject to section 263A of the Internal Revenue Code.

• The property has an estimated production period exceeding 1 year and an estimated production cost exceeding $1,000,000.

• You must have acquired the property, or acquired the property pursuant to a written contract entered into, before January 1, 2020.

 

Noncommercial Aircraft

To be qualified property, noncommercial aircraft must meet the following requirements.

 

• It must meet the requirements in (2)-(4).

• The aircraft must not be tangible personal property used in the trade or business of transporting persons or property (except for agricultural or firefighting purposes).

• The aircraft must be purchased (as discussed under Property Acquired by Purchase in chapter 2) by a purchaser who at the time of the contract for purchase, makes a nonrefundable deposit of the lesser of 10% of the cost or $100,000.

• The aircraft must have an estimated production period exceeding four months and a cost exceeding $200,000.

• You must have acquired the aircraft, or acquired the aircraft pursuant to a written contract entered into, before January 1, 2020.

 

Special Rules

Sale-leaseback. If you sold qualified property you placed in service and leased it back within 3 months after you originally placed in service, the property is treated as originally placed in service no earlier than the date it is used by you under the leaseback.

Syndicated leasing transactions. If qualified property is originally placed in service by a lessor, the property is sold within 3 months of the date it was placed in service, and the user of the property does not change, then the property is treated as originally placed in service by the taxpayer no earlier than the date of the last sale.

Multiple units of property subject to the same lease will be treated as originally placed in service no earlier than the date of the last sale if the property is sold within 3 months after the final unit is placed in service and the period between the time the first and last units are placed in service does not exceed 12 months.

Excepted Property

Qualified property does not include any of the following.

 

• Property placed in service and disposed of in the same tax year.

• Property converted from business use to personal use in the same tax year acquired. Property converted from personal use to business use in the same or later tax year may be qualified property.

• Property required to be depreciated under the Alternative Depreciation System (ADS). This includes listed property used 50% or less in a qualified business use. For other property required to be depreciated using ADS, see Required use of ADS under Which Depreciation System (GDS or ADS) Applies in chapter 4.

• Qualified restaurant property (as defined in section 168(e)(7) of the Internal Revenue Code) that is not qualified improvement property.

• Property for which you elected not to claim any special depreciation allowance (discussed later).

• Property for which you elected to accelerate certain credits in lieu of the special depreciation allowance (discussed next).

 

Certain Plants Bearing Fruits and Nuts

You can elect to claim 50% special depreciation allowance for the adjusted basis of certain specified plants (defined later) bearing fruits and nuts planted or grafted after December 31, 2015, and before January 1, 2020, in the ordinary course of your farming business (as defined in section 263A(e)(4)).

A specified plant is:

 

• Any tree or vine that bears fruits or nuts, and

• Any other plant that will have more than one yield of fruits or nuts and generally has a pre-productive period of more than 2 years from planting or grafting to the time it begins bearing fruits or nuts.

 

Any property planted or grafted outside the United States does not qualify as a specified plant.

If you elect to claim the special depreciation allowance for any specified plant, the special depreciation allowance applies only for the tax year in which the plant is planted or grafted. The plant will not be treated as qualified property eligible for the special depreciation allowance in the subsequent tax year in which it is placed in service.

To make the election, attach a statement to your timely filed return (including extensions) for the tax year in which you plant or graft the specified plant(s) indicating you are electing to apply section 168(k)(5) and identifying the specified plant(s) for which you are making the election. The election once made cannot be revoked without IRS consent.

See section 168(k)(5) of the Internal Revenue Code.

Election to Accelerate Certain Credits in Lieu of the Special Depreciation Allowance

A corporation can elect to claim unused minimum tax credits in lieu of claiming the special depreciation allowance for qualified property (as defined in section 168(k)(2) of the Internal Revenue Code) placed in service during the tax year.

If you make an election to accelerate these credits in lieu of claiming the special depreciation allowance for eligible property, you must not take the 50% special depreciation allowance for the property and must depreciate the basis in the property under MACRS using the straight line method. See Which Depreciation Method Applies in chapter 4.

Once made, the election cannot be revoked without IRS consent.

For more information, see section 168(k)(4) of the Internal Revenue Code.

Additional guidance. For additional guidance on the election to accelerate the minimum tax credit in lieu of claiming the special depreciation allowance, see Form 8827, Credit for Prior Year Minimum Tax -- Corporations, and related instructions.

How Much Can You Deduct?

Terms you may need to know (see Glossary):

 

• Adjusted basis

• Basis

• Placed in service

 

Figure the special depreciation allowance by multiplying the depreciable basis of qualified reuse and recycling property, qualified second generation biofuel plant property, certain qualified property placed in service before January 1, 2020, and certain plants bearing fruits and nuts by 50%.

For qualified property other than listed property, enter the special allowance on Form 4562, Part II, line 14. For qualified property that is listed property, enter the special allowance on Form 4562, Part V, line 25.

TIP: If you place qualified property in service in a short tax year, you can take the full amount of a special depreciation allowance.

Depreciable basis. This is the property's cost or other basis multiplied by the percentage of business/investment use, reduced by the total amount of any credits and deductions allocable to the property.

The following are examples of some credits and deductions that reduce depreciable basis.

 

• Any section 179 deduction.

• Any deduction for removal of barriers to the disabled and the elderly.

• Any disabled access credit, enhanced oil recovery credit, and credit for employer-provided childcare facilities and services.

• Basis adjustment to investment credit property under section 50(c) of the Internal Revenue Code.

 

For additional credits and deductions that affect basis, see section 1016 of the Internal Revenue Code.

For information about how to determine the cost or other basis of property, see What Is the Basis of Your Depreciable Property in chapter 1. For a discussion of business/investment use, see Partial business or investment use under Property Used in Your Business or Income-Producing Activity in chapter 1.

Depreciating the remaining cost. After you figure your special depreciation allowance for your qualified property, you can use the remaining cost to figure your regular MACRS depreciation deduction (discussed in chapter 4). Therefore, you must reduce the depreciable basis of the property by the special depreciation allowance before figuring your regular MACRS depreciation deduction.

Example. On November 1, 2016, Tom Brown bought and placed in service in his business qualified property that cost $450,000. He did not elect to claim a section 179 deduction. He deducts 50% of the cost ($225,000) as a special depreciation allowance for 2016. He uses the remaining $225,000 of cost to figure his regular MACRS depreciation deduction for 2016 and later years.

Like-kind exchanges and involuntary conversions. If you acquire qualified property in a like-kind exchange or involuntary conversion, the carryover basis of the acquired property is eligible for a special depreciation allowance. After you figure your special allowance, you can use the remaining carryover basis to figure your regular MACRS depreciation deduction. In the year you claim the allowance (the year you place in service the property received in the exchange or dispose of involuntarily converted property), you must reduce the carryover basis of the property by the allowance before figuring your regular MACRS depreciation deduction. See Figuring the Deduction for Property Acquired in a Nontaxable Exchange, in chapter 4 under How Is the Depreciation Deduction Figured. The excess basis (the part of the acquired property's basis that exceeds its carryover basis) is also eligible for a special depreciation allowance.

How Can You Elect Not To Claim an Allowance?

You can elect, for any class of property, not to deduct any special depreciation allowances for all property in such class placed in service during the tax year.

To make an election, attach a statement to your return indicating what election you are making and the class of property for which you are making the election.

The election must be made separately by each person owning qualified property (for example, by the partnerships, by the S corporation, or for each member of a consolidated group by the common parent of the group).

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. On the amended return, write "Filed pursuant to section 301.9100-2."

Revoking an election. Once you elect not to deduct a special depreciation allowance for a class of property, you cannot revoke the election without IRS consent. A request to revoke the election is a request for a letter ruling.

CAUTION: If you elect not to have any special depreciation allowance apply, the property placed in service after 2015 will not be subject to an alternative minimum tax adjustment for depreciation.

When Must You Recapture an Allowance?

When you dispose of property for which you claimed a special depreciation allowance, any gain on the disposition is generally recaptured (included in income) as ordinary income up to the amount of the special depreciation allowance previously allowed or allowable. See When Do You Recapture MACRS Depreciation in chapter 4 for more information.

Recapture of allowance deducted for qualified GO Zone property. If, in any year after the year you claim the special depreciation allowance for qualified GO Zone property (including specified GO Zone extension property), the property ceases to be used in the GO Zone, you may have to recapture as ordinary income the excess benefit you received from claiming the special depreciation allowance. For additional guidance, see Notice 2008-25 on page 484 of Internal Revenue Bulletin 2008-9 available at http://www.irs.gov/irb/2008-09_IRB/index.html.

Qualified cellulosic biomass ethanol plant property, qualified cellulosic biofuel plant property, and qualified second generation biofuel plant property. If, in any year after the year you claim the special depreciation allowance for any qualified cellulosic biomass ethanol plant property, qualified cellulosic biofuel plant property, or qualified second generation biofuel plant property, the property ceases to be qualified cellulosic biomass ethanol plant property, qualified cellulosic biofuel plant property, or qualified second generation biofuel plant property, you may have to recapture as ordinary income the excess benefit you received from claiming the special depreciation allowance.

Recapture of allowance for qualified Recovery Assistance property. If, in any year after the year you claim the special depreciation allowance for qualified Recovery Assistance property, the property ceases to be used in the Kansas disaster area, you may have to recapture as ordinary income the excess benefit you received from claiming the special depreciation allowance. For additional guidance, see Notice 2008-67 on page 307 of Internal Revenue Bulletin 2008-32, available at http://www.irs.gov/irb/2008-32_IRB/index.html.

Recapture of allowance for qualified disaster assistance property. If, in any year after the year you claim the special depreciation allowance for qualified disaster assistance property, the property ceases to be used in the applicable disaster area, you may have to recapture as ordinary income the excess benefit you received from claiming the special depreciation allowance.

4. Figuring Depreciation Under MACRS

Introduction

The Modified Accelerated Cost Recovery System (MACRS) is used to recover the basis of most business and investment property placed in service after 1986. MACRS consists of two depreciation systems, the General Depreciation System (GDS) and the Alternative Depreciation System (ADS). Generally, these systems provide different methods and recovery periods to use in figuring depreciation deductions.

CAUTION: To be sure you can use MACRS to figure depreciation for your property, see What Method Can You Use To Depreciate Your Property in chapter 1.

This chapter explains how to determine which MACRS depreciation system applies to your property. It also discusses other information you need to know before you can figure depreciation under MACRS. This information includes the property's recovery class, placed in service date, and basis, as well as the applicable recovery period, convention, and depreciation method. It explains how to use this information to figure your depreciation deduction and how to use a general asset account to depreciate a group of properties. Finally, it explains when and how to recapture MACRS depreciation.

Useful Items

You may want to see:

Publication

 

Publication 225 Farmer's Tax Guide

Publication 544 Sales and Other Dispositions of Assets

Publication 551 Basis of Assets

Publication 587 Business Use of Your Home (Including Use by Daycare Providers)

 

Form (and Instructions)

 

Form 2106 Employee Business Expenses

Form 2106-EZ Unreimbursed Employee Business Expenses

Form 4562 Depreciation and Amortization

 

See chapter 6 for information about getting publications and forms.

Which Depreciation System (GDS or ADS) Applies?

Terms 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 ADS.

If you placed your property in service in 2016, complete Part III of Form 4562 to report depreciation using MACRS. Complete section B of Part III to report depreciation using GDS, and complete section C of Part III to report depreciation using ADS. If you placed your property in service before 2016 and are required to file Form 4562, report depreciation using either GDS or ADS on line 17 in Part III.

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

 

• Listed property used 50% or less in a qualified business use. See chapter 5 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 property imported from a foreign country for which an Executive Order is in effect because the country maintains trade restrictions or engages in other discriminatory acts.

 

CAUTION: If you are required to use ADS to depreciate your property, you cannot claim any special depreciation allowance (discussed in chapter 3) for the property.

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 Form 4562, Part III, line 20.

Which Property Class Applies Under GDS?

Terms you may need to know (see Glossary):

 

• Class life

• Nonresidential real property

• Placed in service

• Property class

• Recovery period

• Residential rental property

• Section 1245 property

• Section 1250 property

 

The following is a list of the nine property classifications under GDS and examples of the types of property included in each class. These property classes are also listed under column (a) in section B, Part III, of Form 4562. For detailed information on property classes, see Appendix B, Table of Class Lives and Recovery Periods, in this publication.

 

1. 3-year property.

 

a. Tractor units for over-the-road use.

b. Any race horse over 2 years old when placed in service. (All race horses placed in service after December 31, 2008, and before January 1, 2017, are deemed to be 3-year property, regardless of age.)

c. Any other horse (other than a race horse) over 12 years old when placed in service.

d. Qualified rent-to-own property (defined later).

 

2. 5-year property.

 

a. Automobiles, taxis, buses, and trucks.

b. Computers and peripheral equipment.

c. Office machinery (such as typewriters, calculators, and copiers).

d. Any property used in research and experimentation.

e. Breeding cattle and dairy cattle.

f. Appliances, carpets, furniture, etc., used in a residential rental real estate activity.

g. Certain geothermal, solar, and wind energy property.

 

3. 7-year property.

 

a. Office furniture and fixtures (such as desks, files, and safes).

b. Agricultural machinery and equipment.

c. Railroad track.

d. Any property that does not have a class life and has not been designated by law as being in any other class.

e. Certain motorsports entertainment complex property (defined later) placed in service before January 1, 2017.

f. Any natural gas gathering line placed in service after April 11, 2005. See Natural gas gathering line and electric transmission property, later.

 

4. 10-year property.

 

a. Vessels, barges, tugs, and similar water transportation equipment.

b. Any single purpose agricultural or horticultural structure.

c. Any tree or vine bearing fruits or nuts.

d. Qualified small electric meter and qualified smart electric grid system (defined later) placed in service on or after October 3, 2008.

 

5. 15-year property.

 

a. Certain improvements made directly to land or added to it (such as shrubbery, fences, roads, sidewalks, and bridges).

b. Any retail motor fuels outlet (defined later), such as a convenience store.

c. Any municipal wastewater treatment plant.

d. Any qualified leasehold improvement property (defined later).

e. Any qualified restaurant property (defined later).

f. Initial clearing and grading land improvements for gas utility property.

g. Electric transmission property (that is section 1245 property) used in the transmission at 69 or more kilovolts of electricity placed in service after April 11, 2005. See Natural gas gathering line and electric transmission property, later.

h. Any natural gas distribution line placed in service after April 11, 2005, and before January 1, 2011.

i. Any qualified retail improvement property.

j. Any telephone distribution plant and comparable equipment used for 2-way exchange of voice and data communications.

 

6. 20-year property.

 

a. Farm buildings (other than single purpose agricultural or horticultural structures).

b. Municipal sewers not classified as 25-year property.

c. Initial clearing and grading land improvements for electric utility transmission and distribution plants.

 

7. 25-year property. This class is water utility property, which is either of the following.

 

a. Property that is an integral part of the gathering, treatment, or commercial distribution of water, and that, without regard to this provision, would be 20-year property.

b. Municipal sewers other than property placed in service under a binding contract in effect at all times since June 9, 1996.

 

8. Residential rental property. This is any building or structure, such as a rental home (including a mobile home), if 80% or more of its gross rental income for the tax year is from dwelling units. A dwelling unit is a house or apartment used to provide living accommodations in a building or structure. It does not include a unit in a hotel, motel, or other establishment where more than half the units are used on a transient basis. If you occupy any part of the building or structure for personal use, its gross rental income includes the fair rental value of the part you occupy.

9. Nonresidential real property. This is section 1250 property, such as an office building, store, or warehouse, that is neither residential rental property nor property with a class life of less than 27.5 years.

 

Qualified rent-to-own property. Qualified rent-to-own property is property held by a rent-to-own dealer for purposes of being subject to a rent-to-own contract. It is tangible personal property generally used in the home for personal use. It includes computers and peripheral equipment, televisions, videocassette recorders, stereos, camcorders, appliances, furniture, washing machines and dryers, refrigerators, and other similar consumer durable property. Consumer durable property does not include real property, aircraft, boats, motor vehicles, or trailers.

If some of the property you rent to others under a rent-to-own agreement is of a type that may be used by the renters for either personal or business purposes, you still can treat this property as qualified property as long as it does not represent a significant portion of your leasing property. However, if this dual-use property does represent a significant portion of your leasing property, you must prove that this property is qualified rent-to-own property.

Rent-to-own dealer. You are a rent-to-own dealer if you meet all the following requirements.

 

• You regularly enter into rent-to-own contracts (defined below) in the ordinary course of your business for the use of consumer property.

• A substantial portion of these contracts end with the customer returning the property before making all the payments required to transfer ownership.

• The property is tangible personal property of a type generally used within the home for personal use.

 

Rent-to-own contract. This is any lease for the use of consumer property between a rent-to-own dealer and a customer who is an individual which--

 

• Is titled "Rent-to-Own Agreement," "Lease Agreement with Ownership Option," or other similar language.

• Provides a beginning date and a maximum period of time, not to exceed 156 weeks or 36 months from the beginning date, for which the contract can be in effect (including renewals or options to extend).

• Provides for regular periodic (weekly or monthly) payments that can be either level or decreasing. If the payments are decreasing, no payment can be less than 40% of the largest payment.

• Provides for total payments that generally exceed the normal retail price of the property plus interest.

• Provides for total payments that do not exceed $10,000 for each item of property.

• Provides that the customer has no legal obligation to make all payments outlined in the contract and that, at the end of each weekly or monthly payment period, the customer can either continue to use the property by making the next payment or return the property in good working order with no further obligations and no entitlement to a return of any prior payments.

• Provides that legal title to the property remains with the rent-to-own dealer until the customer makes either all the required payments or the early purchase payments required under the contract to acquire legal title.

• Provides that the customer has no right to sell, sublease, mortgage, pawn, pledge, or otherwise dispose of the property until all contract payments have been made.

 

Motorsports entertainment complex. This is a racing track facility permanently situated on land that hosts one or more racing events for automobiles, trucks, or motorcycles during the 36-month period after the first day of the month in which the facility is placed in service. The events must be open to the public for the price of admission.

Qualified smart electric grid system. A qualified smart electric grid system means any smart grid property used as part of a system for electric distribution grid communications, monitoring, and management placed in service after October 3, 2008, by a taxpayer who is a supplier of electrical energy or a provider of electrical energy services. Smart grid property includes electronics and related equipment that is capable of:

 

• Sensing, collecting, and monitoring data of or from all portions of a utility's electric distribution grid,

• Providing real-time, two-way communications to monitor or to manage the grid, and

• Providing real-time analysis of an event prediction based on collected data that can be used to provide electric distribution system reliability, quality, and performance.

 

Retail motor fuels outlet. Real property is a retail motor fuels outlet if it is used to a substantial extent in the retail marketing of petroleum or petroleum products (whether or not it is also used to sell food or other convenience items) and meets any one of the following three tests.

 

• It is not larger than 1,400 square feet.

• 50% or more of the gross revenues generated from the property are derived from petroleum sales.

• 50% or more of the floor space in the property is devoted to petroleum marketing sales.

 

A retail motor fuels outlet does not include any facility related to petroleum and natural gas trunk pipelines.

Qualified leasehold improvement property. Generally, this is any improvement to an interior part of a building that is nonresidential real property, if all of the following requirements are met.

 

• The improvement is made under or according 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 by any person.

• The improvement is section 1250 property. See chapter 3 in Pub. 544, Sales and Other Dispositions of Assets, for the definition of section 1250 property.

 

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 lease between related persons is not treated as a lease.

In addition, an improvement made by the lessor does not qualify as qualified leasehold improvement property to any subsequent owner unless it is acquired from the original lessor by reason of the lessor's death or in any of the following types of transactions.

 

1. A transaction to which section 381(a) applies,

2. A mere change in the form of conducting the trade or business so long as the property is retained in the trade or business as qualified leasehold improvement property and the taxpayer retains a substantial interest in the trade or business,

3. A like-kind exchange, involuntary conversion, or reacquisition of real property to the extent that the basis in the property represents the carryover basis, or

4. Certain nonrecognition transactions to the extent that your basis in the property is determined by reference to the transferor's or distributor's basis in the property. Examples include the following.

 

a. A complete liquidation of a subsidiary.

b. A transfer to a corporation controlled by the transferor.

c. An exchange of property by a corporation solely for stock or securities in another corporation in a reorganization.

Qualified restaurant property. Qualified restaurant property is any section 1250 property that is a building, or an improvement to a building, placed in service after December 31, 2008. Also, more than 50% of the building's square footage must be devoted to preparation of meals and seating for on-premises consumption of prepared meals.

Qualified smart electric meter. A qualified smart electric meter is any time-based meter and related communication equipment which is placed in service by a supplier of electric energy or a provider of electric energy services and which is capable of being used by you as part of a system that:

 

• Measures and records electricity usage data on a time-differentiated basis in at least 24 separate time segments per day.

• Provides for the exchange of information between the supplier or provider and the customer's smart electric meter in support of time-based rates or other forms of demand response.

• Provides data to the supplier or provider so that the supplier or provider can provide energy usage information to customers electronically.

• Provides all commercial and residential customers of such supplier or provider with net metering. Net metering means allowing a customer a credit, if any, as complies with applicable federal and state laws and regulations for providing electricity to the supplier or provider.

 

Natural gas gathering line and electric transmission property. Any natural gas gathering line placed in service after April 11, 2005, is treated as 7-year property, and electric transmission property (that is section 1245 property) used in the transmission at 69 or more kilovolts of electricity and any natural gas distribution line placed in service after April 11, 2005, are treated as 15-year property, if the following requirements are met.

 

• The original use of the property must have begun with you after April 11, 2005. Original use means the first use to which the property is put, whether or not by you. Therefore, property used by any person before April 12, 2005, is not original use. Original use includes additional capital expenditures you incurred to recondition or rebuild your property. However, original use does not include the cost of reconditioned or rebuilt property you acquired. Property containing used parts will not be treated as reconditioned or rebuilt if the cost of the used parts is not more than 20% of the total cost of the property.

• The property must not be placed in service under a binding contract in effect before April 12, 2005.

• The property must not be self-constructed property (property you manufacture, construct, or produce for your own use), if you began the manufacture, construction, or production of the property before April 12, 2005. Property that is manufactured, constructed, or produced for your use by another person under a written binding contract entered into by you or a related party before the manufacture, construction, or production of the property is considered to be manufactured, constructed, or produced by you.

 

What Is the Placed in Service Date?

Terms you may need to know (see Glossary):

 

• Placed in service

 

You begin to claim depreciation when your property is placed in service for either use in a trade or business or the production of income. The placed in service date for your property is the date the property is ready and available for a specific use. It is therefore not necessarily the date it is first used. If you converted property held for personal use to use in a trade or business or for the production of income, treat the property as being placed in service on the conversion date. See Placed in Service under When Does Depreciation Begin and End in chapter 1 for examples illustrating when property is placed in service.

What Is the Basis for Depreciation?

Terms you may need to know (see Glossary):

 

• Basis

 

The basis for depreciation of MACRS property is the property's cost or other basis multiplied by the percentage of business/investment use. For a discussion of business/ investment use, see Partial business or investment use under Property Used in Your Business or Income-Producing Activity in chapter 1. Reduce that amount by any credits and deductions allocable to the property. The following are examples of some credits and deductions that reduce basis.

 

• Any deduction for section 179 property.

• Any deduction under section 179B of the Internal Revenue Code for capital costs to comply with Environmental Protection Agency sulfur regulations.

• Any deduction under section 179C of the Internal Revenue Code for certain qualified refinery property placed in service after August 8, 2005, and before January 1, 2014.

• Any deduction under section 179D of the Internal Revenue Code for certain energy efficient commercial building property placed in service after December 31, 2005, and before January 1, 2017.

• Any deduction under section 179E of the Internal Revenue Code for qualified advanced mine safety equipment property placed in service after December 20, 2006, and before January 1, 2017.

• Any deduction for removal of barriers to the disabled and the elderly.

• Any disabled access credit, enhanced oil recovery credit, and credit for employer-provided childcare facilities and services.

• Any special depreciation allowance.

• Basis adjustment for investment credit property under section 50(c) of the Internal Revenue Code.

 

For additional credits and deductions that affect basis, see section 1016 of the Internal Revenue Code.

Enter the basis for depreciation under column (c) in Part III of Form 4562. For information about how to determine the cost or other basis of property, see What Is the Basis of Your Depreciable Property in chapter 1.

Which Recovery Period Applies?

Terms you may need to know (see Glossary):

 

• Active conduct of a trade or business

• Basis

• Improvement

• Listed property

• Nonresidential real property

• Placed in service

• Property class

• Recovery period

• Residential rental property

• Section 1245 property

 

The recovery period of property is the number of years over which you recover its cost or other basis. It is determined based on the depreciation system (GDS or ADS) used.

Recovery Periods Under GDS

Under GDS, property that is not qualified Indian reservation property is depreciated over one of the following recovery periods.

 Property Class                        Recovery Period

 

 3-year property                            3 years1

 

 5-year property                            5 years

 

 7-year property                            7 years

 

 10-year property                          10 years

 

 15-year property                          15 years2

 

 20-year property                          20 years

 

 25-year property                          25 years3

 

 Residential rental property                  27.5

 

                                              years

 

 Nonresidential real property              39 years4

 

 1 5 years for qualified rent-to-own property placed in

 

 service before August 6, 1997.

 

 2 39 years for property that is a retail motor fuels

 

 outlet placed in service before August 20, 1996 (31.5

 

 years if placed in service before May 13, 1993), unless

 

 you elected to depreciate it over 15 years.

 

 3 20 years for property placed in service before June

 

 13, 1996, or under a binding contract in effect before

 

 June 10, 1996.

 

 4 31.5 years for property placed in service before May

 

 13, 1993 (or before January 1, 1994, if the purchase

 

 or construction of the property is under a binding

 

 contract in effect before May 13, 1993, or if

 

 construction began before May 13, 1993).

 

 ======================================================

 

 

The GDS recovery periods for property not listed above can be found in Appendix B, Table of Class Lives and Recovery Periods. Residential rental property and nonresidential real property are defined earlier under Which Depreciation System (GDS or ADS) Applies.

Enter the appropriate recovery period on Form 4562 under column (d) in section B of Part III, unless already shown (for 25-year property, residential rental property, and nonresidential real property).

Office in the home. If your home is a personal-use single family residence and you begin to use part of your home as an office, depreciate that part of your home as nonresidential real property over 39 years (31.5 years if you began using it for business before May 13, 1993). However, if your home is an apartment in an apartment building that you own and the building is residential rental property as defined earlier under Which Depreciation System (GDS or ADS) Applies, depreciate the part used as an office as residential rental property over 27.5 years. See Pub. 587 for a discussion of the tests you must meet to claim expenses, including depreciation, for the business use of your home.

Home changed to rental use. If you begin to rent a home that was your personal home before 1987, you depreciate it as residential rental property over 27.5 years.

Indian Reservation Property

The recovery periods for qualified property you placed in service on an Indian reservation after 1993 and before 2017 are shorter than those listed earlier. The following table shows these shorter recovery periods.

                                           Recovery

 

 Property Class                             Period

 

 3-year property                            2 years

 

 5-year property                            3 years

 

 7-year property                            4 years

 

 10-year property                           6 years

 

 15-year property                           9 years

 

 20-year property                          12 years

 

 Nonresidential real property              22 years

 

 

Nonresidential real property is defined earlier under Which Property Class Applies Under GDS.

Use this chart to find the correct percentage table to use for qualified Indian reservation property.

 ---------------------------------------------------------------

 

                                THEN use the following table in

 

 IF your recovery period is:    Appendix A:

 

 ---------------------------------------------------------------

 

 2 years                        A-21

 

 ---------------------------------------------------------------

 

 3 years                        A-1, A-2, A-3, A-4, or A-5

 

 ---------------------------------------------------------------

 

 4 years                        A-22

 

 ---------------------------------------------------------------

 

 6 years                        A-23

 

 ---------------------------------------------------------------

 

 9 years                        A-14, A-15, A-16, A-17, or A-18

 

 ---------------------------------------------------------------

 

 12 years                       A-14, A-15, A-16, A-17, or A-18

 

 ---------------------------------------------------------------

 

 22 years                       A-24

 

 ---------------------------------------------------------------

 

 

Qualified property. Property eligible for the shorter recovery periods are 3-, 5-, 7-, 10-, 15-, and 20-year property and nonresidential real property. You must use this property predominantly in the active conduct of a trade or business within an Indian reservation. The rental of real property that is located on an Indian reservation is treated as the active conduct of a trade or business within an Indian reservation.

The following property is not qualified property.

 

1. Property used or located outside an Indian reservation on a regular basis, other than qualified infrastructure property.

2. Property acquired directly or indirectly from a related person.

3. Property placed in service for purposes of conducting or housing class I, II, or III gaming activities. These activities are defined in section 4 of the Indian Regulatory Act (25 U.S.C. 2703).

4. Any property you must depreciate under ADS. Determine whether property is qualified without regard to the election to use ADS and after applying the special rules for listed property not used predominantly for qualified business use (discussed in chapter 5).

 

Note. You can make an election out of the shorter recovery period(s) above for qualified Indian reservation property in a class of property that is placed in service in a tax year beginning after December 31, 2015.

To make this election, attach a statement to your timely filed return (including extensions) for the tax year in which you place the property in service indicating the class of property for which you are making the election and that, for such class you are electing not to apply section 168(j). Once made, this election is irrevocable.

CAUTION: If you make this election, the property placed in service in a tax year beginning after December 31, 2015, will be subject to an alternative minimum tax adjustment for depreciation.

Qualified infrastructure property. Item (1) above does not apply to qualified infrastructure property located outside the reservation that is used to connect with qualified infrastructure property within the reservation. Qualified infrastructure property is property that meets all the following rules.

 

• It is qualified property, as defined earlier, except that it is outside the reservation.

• It benefits the tribal infrastructure.

• It is available to the general public.

• It is placed in service in connection with the active conduct of a trade or business within a reservation.

 

Infrastructure property includes, but is not limited to, roads, power lines, water systems, railroad spurs, and communications facilities.

Related person. For purposes of item (2) above, see Related persons in the discussion on property owned or used in 1986 under What Method Can You Use To Depreciate Your Property in chapter 1 for a description of related persons.

Indian reservation. The term Indian reservation means a reservation as defined in section 3(d) of the Indian Financing Act of 1974 (25 U.S.C. 1452(d)) or section 4(10) of the Indian Child Welfare Act of 1978 (25 U.S.C. 1903(10)). Section 3(d) of the Indian Financing Act of 1974 defines reservation to include former Indian reservations in Oklahoma. For a definition of the term "former Indian reservations in Oklahoma," see Notice 98-45 in Internal Revenue Bulletin 1998-35.

Recovery Periods Under ADS

The recovery periods for most property generally are longer under ADS than they are under GDS. The following table shows some of the ADS recovery periods.

                                              Recovery

 

 Property                                      Period

 

 Rent-to-own property                          4 years

 

 Automobiles and light duty trucks             5 years

 

 Computers and peripheral equipment            5 years

 

 High technology telephone station

 

   equipment installed on customer

 

   premises                                    5 years

 

 High technology medical equipment             5 years

 

 Personal property with no class life         12 years

 

 Natural gas gathering lines                  14 years

 

 Single purpose agricultural and

 

   horticultural structures                   15 years

 

 Any tree or vine bearing fruit or nuts       20 years

 

 Initial clearing and grading land

 

   improvements for gas utility property      20 years

 

 Initial clearing and grading land

 

   improvements for electric utility

 

   transmission and distribution plants       25 years

 

 Electric transmission property used in the

 

   transmission at 69 or more kilovolts of

 

   electricity                                30 years

 

 Natural gas distribution lines               35 years

 

 Any qualified leasehold improvement

 

   property                                   39 years

 

 Any qualified restaurant property            39 years

 

 Nonresidential real property                 40 years

 

 Residential rental property                  40 years

 

 Section 1245 real property not listed in

 

   Appendix B                                 40 years

 

 Railroad grading and tunnel bore             50 years

 

 

The ADS recovery periods for property not listed above can be found in the tables in Appendix B. Rent-to-own property, qualified leasehold improvement property, qualified restaurant property, residential rental property, and nonresidential real property are defined earlier under Which Property Class Applies Under GDS.

Tax-exempt use property subject to a lease. The ADS recovery period for any property leased under a lease agreement to a tax-exempt organization, governmental unit, or foreign person or entity (other than a partnership) cannot be less than 125% of the lease term.

Additions and Improvements

An addition or improvement you make to depreciable property is treated as separate depreciable property. See How Do You Treat Repairs and Improvements in chapter 1 for a definition of improvements. Its property class and recovery period are the same as those that would apply to the original property if you had placed it in service at the same time you placed the addition or improvement in service. The recovery period begins on the later of the following dates.

 

• The date you place the addition or improvement in service.

• The date you place in service the property to which you made the addition or improvement.

 

CAUTION: If the improvement you make is qualified leasehold improvement property, qualified restaurant property, or qualified retail improvement property, the GDS recovery period is 15 years (39 years under ADS).

Example. You own a rental home that you have been renting out since 1981. If you put an addition on the home and place the addition in service this year, you would use MACRS to figure your depreciation deduction for the addition. Under GDS, the property class for the addition is residential rental property and its recovery period is 27.5 years because the home to which the addition is made would be residential rental property if you had placed it in service this year.

Which Convention Applies?

Terms you may need to know (see Glossary):

 

• Basis

• Convention

• Disposition

• Nonresidential real property

• Placed in service

• Recovery period

• Residential rental property

 

Under MACRS, averaging conventions establish when the recovery period begins and ends. The convention you use determines the number of months for which you can claim depreciation in the year you place property in service and in the year you dispose of the property.

The mid-month convention. Use this convention for nonresidential real property, residential rental property, and any railroad grading or tunnel bore.

Under this convention, you treat all property placed in service or disposed of during a month as placed in service or disposed of at the midpoint of the month. This means that a one-half month of depreciation is allowed for the month the property is placed in service or disposed of.

Your use of the mid-month convention is indicated by the "MM" already shown under column (e) in Part III of Form 4562.

The mid-quarter convention. Use this convention if the mid-month convention does not apply and the total depreciable bases of MACRS property you placed in service during the last 3 months of the tax year (excluding nonresidential real property, residential rental property, any railroad grading or tunnel bore, property placed in service and disposed of in the same year, and property that is being depreciated under a method other than MACRS) are more than 40% of the total depreciable bases of all MACRS property you placed in service during the entire year.

Under this convention, you treat all property placed in service or disposed of during any quarter of the tax year as placed in service or disposed of at the midpoint of that quarter. This means that 1 1/2 months of depreciation is allowed for the quarter the property is placed in service or disposed of.

If you use this convention, enter "MQ" under column (e) in Part III of Form 4562.

CAUTION: For purposes of determining whether the mid-quarter convention applies, the depreciable basis of property you placed in service during the tax year reflects the reduction in basis for amounts expensed under section 179 and the part of the basis of property attributable to personal use. However, it does not reflect any reduction in basis for any special depreciation allowance.

The half-year convention. Use this convention if neither the mid-quarter convention nor the mid-month convention applies.

Under this convention, you treat all property placed in service or disposed of during a tax year as placed in service or disposed of at the midpoint of the year. This means that a one-half year of depreciation is allowed for the year the property is placed in service or disposed of.

If you use this convention, enter "HY" under column (e) in Part III of Form 4562.

Which Depreciation Method Applies?

Terms you may need to know (see Glossary):

 

• Declining balance method

• Listed property

• Nonresidential real property

• Placed in service

• Property class

• Recovery period

• Residential rental property

• Straight line method

• Tax exempt

 

MACRS provides three depreciation methods under GDS and one depreciation method under ADS.

 

• The 200% declining balance method over a GDS recovery period.

• The 150% declining balance method over a GDS recovery period.

• The straight line method over a GDS recovery period.

• The straight line method over an ADS recovery period.

 

CAUTION: For property placed in service before 1999, you could have elected the 150% declining balance method using the ADS recovery periods for certain property classes. If you made this election, continue to use the same method and recovery period for that property.

Table 4-1 lists the types of property you can depreciate under each method. It also gives a brief explanation of the method, including any benefits that may apply.

Depreciation Methods for Farm Property

If you place personal property in service in a farming business after 1988, you generally must depreciate it under GDS using the 150% declining balance method unless you are a farmer who must depreciate the property under ADS using the straight line method or you elect to depreciate the property under GDS or ADS using the straight line method. You can depreciate real property using the straight line method under either GDS or ADS.

Fruit or nut trees and vines. Depreciate trees and vines bearing fruit or nuts under GDS using the straight line method over a recovery period of 10 years.

ADS required for some farmers. If you elect not to apply the uniform capitalization rules to any plant produced in your farming business, you must use ADS. You must use ADS for all property you place in service in any year the election is in effect. See the regulations under section 263A of the Internal Revenue Code for information on the uniform capitalization rules that apply to farm property.

Electing a Different Method

As shown in Table 4-1, you can elect a different method for depreciation for certain types of property. You must make the election by the due date of the return (including extensions) for the year you placed the property in service. However, if you timely filed your return for the year without making the election, you still can make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Attach the election to the amended return and write "Filed pursuant to section 301.9100-2" on the election statement. File the amended return at the same address you filed the original return. Once you make the election, you cannot change it.

Table 4-1. Depreciation Methods

 ----------------------------------------------------------------------

 

 Note. The declining balance method is abbreviated as DB and the

 

 straight line method is abbreviated as SL.

 

 ----------------------------------------------------------------------

 

    Method           Type of Property                   Benefit

 

 ----------------------------------------------------------------------

 

 GDS using 200%  • Nonfarm 3-, 5-, 7-, and        • Provides a greater

 

 DB              10-year property                 deduction during the

 

                                                  earlier recovery

 

                                                  years

 

                                                  • Changes to SL when

 

                                                  that method provides

 

                                                  an equal or greater

 

                                                  deduction

 

 ----------------------------------------------------------------------

 

 GDS using 150%  • All farm property (except      • Provides a greater

 

 DB              real property)                   deduction during the

 

                                                  earlier recovery

 

                 • All 15- and 20-year            years

 

                 property (except qualified

 

                 leasehold improvement property,  • Changes to SL when

 

                 qualified  that method provides  an equal or greater

 

                 restaurant property, and         deduction1

 

                 qualified retail improvement

 

                 property)

 

                 • Nonfarm 3-, 5-, 7-, and

 

                 10-year property

 

 ----------------------------------------------------------------------

 

 GDS using SL    • Nonresidential real property   • Provides for equal

 

                                                  yearly deductions

 

                 • Qualified leasehold            (except for the

 

                 improvement property             first and last years)

 

                 • Qualified restaurant property

 

                 • Qualified retail improvement

 

                 property

 

                 • Residential rental property

 

                 • Trees or vines bearing fruit

 

                 or nuts

 

                 • Water utility property

 

                 • All 3-, 5-, 7-, 10-, 15-, and

 

                 20-year property2

 

                 • Property for which you

 

                 elected section 168(k)(4)

 

 ----------------------------------------------------------------------

 

 ADS using SL    • Listed property used 50% or    • Provides for equal

 

                 less for business                yearly deductions

 

                                                  (except for the

 

                 • Property used predominantly    first and last

 

                 outside the U.S.                 years)

 

                 • Tax-exempt property

 

                 • Tax-exempt bond-financed

 

                 property

 

                 • Farm property used when an

 

                 election not to apply the

 

                 uniform capitalization rules

 

                 is in effect

 

                 • Imported property3

 

                 • Any property for which you

 

                 elect to use this method4

 

 ----------------------------------------------------------------------

 

 1 The MACRS percentage tables in Appendix A have the switch to the

 

 straight line method built into their rates.

 

 2 See section 168(b)(5) of the Internal Revenue Code.

 

 3 See section 168(g)(6) of the Internal Revenue Code.

 

 4 See section 168(g)(7) of the Internal Revenue Code.

 

 ======================================================================

 

 

CAUTION: If you elect to use a different method for one item in a property class, you must apply the same method to all property in that class placed in service during the year of the election. However, you can make the election on a property-by-property basis for nonresidential real and residential rental property.

150% election. Instead of using the 200% declining balance method over the GDS recovery period for nonfarm property in the 3-, 5-, 7-, and 10-year property classes, you can elect to use the 150% declining balance method. Make the election by entering "150 DB" under column (f) in Part III of Form 4562.

Straight line election. Instead of using either the 200% or 150% declining balance methods over the GDS recovery period, you can elect to use the straight line method over the GDS recovery period. Make the election by entering "S/L" under column (f) in Part III of Form 4562.

Election of ADS. As explained earlier under Which Depreciation System (GDS or ADS) Applies, you can elect to use ADS even though your property may come under GDS. ADS uses the straight line method of depreciation over fixed ADS recovery periods. Most ADS recovery periods are listed in Appendix B, or see the table under Recovery Periods Under ADS, earlier.

Make the election by completing line 20 in Part III of Form 4562.

Farm property. Instead of using the 150% declining balance method over a GDS recovery period for property you use in a farming business (other than real property), you can elect to depreciate it using either of the following methods.

 

• The straight line method over a GDS recovery period.

• The straight line method over an ADS recovery period.

 

How Is the Depreciation Deduction Figured?

Terms you may need to know (see Glossary):

 

• Adjusted basis

• Amortization

• Basis

• Business/investment use

• Convention

• Declining balance method

• Disposition

• Exchange

• Nonresidential real property

• Placed in service

• Property class

• Recovery period

• Straight line method

• Unadjusted basis

 

To figure your depreciation deduction under MACRS, you first determine the depreciation system, property class, placed in service date, basis amount, recovery period, convention, and depreciation method that applies to your property. Then, you are ready to figure your depreciation deduction. You can figure it using a percentage table provided by the IRS, or you can figure it yourself without using the table.

Using the MACRS Percentage Tables

To help you figure your deduction under MACRS, the IRS has established percentage tables that incorporate the applicable convention and depreciation method. These percentage tables are in Appendix A near the end of this publication.

Which table to use. Appendix A contains the MACRS Percentage Table Guide, which is designed to help you locate the correct percentage table to use for depreciating your property. The percentage tables immediately follow the guide.

Rules Covering the Use of the Tables

The following rules cover the use of the percentage tables.

 

1. You must apply the rates in the percentage tables to your property's unadjusted basis.

2. You cannot use the percentage tables for a short tax year. See Figuring the Deduction for a Short Tax Year, later, for information on the short tax year rules.

3. Once you start using the percentage tables for any item of property, you generally must continue to use them for the entire recovery period of the property.

4. You must stop using the tables if you adjust the basis of the property for any reason other than--

 

a. Depreciation allowed or allowable, or

b. An addition or improvement to that property that is depreciated as a separate item of property.

Basis adjustments other than those made due to the items listed in (4) include an increase in basis for the recapture of a clean-fuel deduction or credit and a reduction in basis for a casualty loss.

Basis adjustment due to recapture of clean-fuel vehicle deduction or credit. If you increase the basis of your property because of the recapture of part or all of a deduction for clean-fuel vehicles or the credit for clean-fuel vehicle refueling property placed in service before January 1, 2006, you cannot continue to use the percentage tables. For the year of the adjustment and the remaining recovery period, you must figure the depreciation deduction yourself using the property's adjusted basis at the end of the year. See Figuring the Deduction Without Using the Tables, later.

Basis adjustment due to casualty loss. If you reduce the basis of your property because of a casualty, you cannot continue to use the percentage tables. For the year of the adjustment and the remaining recovery period, you must figure the depreciation yourself using the property's adjusted basis at the end of the year. See Figuring the Deduction Without Using the Tables, later.

Example. On October 26, 2015, Sandra Elm, a calendar year taxpayer, bought and placed in service in her business a new item of 7-year property. It cost $39,000 and she elected a section 179 deduction of $24,000. She also took a special depreciation allowance of $7,500 [50% of $15,000 ($39,000 - $24,000)]. Her unadjusted basis after the section 179 deduction and special depreciation allowance was $7,500 ($15,000 - $7,500). She figured her MACRS depreciation deduction using the percentage tables. For 2015, her MACRS depreciation deduction was $268.

In July 2016, the property was vandalized and Sandra had a deductible casualty loss of $3,000. She must adjust the property's basis for the casualty loss, so she can no longer use the percentage tables. Her adjusted basis at the end of 2016, before figuring her 2016 depreciation, is $4,232. She figures that amount by subtracting the 2015 MACRS depreciation of $268 and the casualty loss of $3,000 from the unadjusted basis of $7,500. She must now figure her depreciation for 2016 without using the percentage tables.

Figuring the Unadjusted Basis of Your Property

You must apply the table rates to your property's unadjusted basis each year of the recovery period. Unadjusted basis is the same basis amount you would use to figure gain on a sale, but you figure it without reducing your original basis by any MACRS depreciation taken in earlier years. However, you do reduce your original basis by other amounts, including the following.

 

• Any amortization taken on the property.

• Any section 179 deduction claimed.

• Any special depreciation allowance taken on the property.

 

For business property you purchase during the year, the unadjusted basis is its cost minus these and other applicable adjustments. If you trade property, your unadjusted basis in the property received is the cash paid plus the adjusted basis of the property traded minus these adjustments.

MACRS Worksheet

You can use this worksheet to help you figure your depreciation deduction using the percentage tables. Use a separate worksheet for each item of property. Then, use the information from this worksheet to prepare Form 4562.

CAUTION: Do not use this worksheet for automobiles. Use the Depreciation Worksheet for Passenger Automobiles in chapter 5.

MACRS Worksheet

                     Keep for Your Records

 

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                                Part I

 

  1. MACRS system (GDS or

 

     ADS)                                           ___________________

 

  2. Property class                                 ___________________

 

  3. Date placed in service                         ___________________

 

  4. Recovery period                                ___________________

 

  5. Method and convention                          ___________________

 

  6. Depreciation rate (from tables)                ___________________

 

                                Part II

 

  7. Cost or other basis*

 

  8. Business/investment use                        _____%

 

  9. Multiply line 7 by line 8

 

 

 10. Total claimed for section 179 deduction

 

     and other items                                             $

 

 11. Subtract line 10 from line 9. This is your

 

     tentative basis for depreciation

 

 

 12. Multiply line 11 by .50 if the 50% special

 

     depreciation allowance applies. This is

 

     your special depreciation allowance.

 

     Enter -0- if this is not the year you placed

 

     the property in service, the property is not

 

     qualified property, or you elected not to

 

     claim a special allowance

 

 

 13. Subtract line 12 from line 11. This is your

 

     basis for depreciation                                      ______

 

 14. Depreciation rate (from line 6)                             ______

 

 15. Multiply line 13 by line 14. This is your

 

     MACRS depreciation deduction                                $

 

                                                                 ======

 

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 * If real estate, do not include cost (basis) of land.

 

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The following example shows how to figure your MACRS depreciation deduction using the percentage tables and the MACRS Worksheet.

Example. You bought office furniture (7-year property) for $10,000 and placed it in service on August 11, 2016. You use the furniture only for business. This is the only property you placed in service this year. You did not elect a section 179 deduction and the property is not qualified property for purposes of claiming a special depreciation allowance so your property's unadjusted basis is its cost, $10,000. You use GDS and the half-year convention to figure your depreciation. You refer to the MACRS Percentage Table Guide in Appendix A and find that you should use Table A-1. Multiply your property's unadjusted basis each year by the percentage for 7-year property given in Table A-1. You figure your depreciation deduction using the MACRS Worksheet as follows.

MACRS Worksheet

                       Keep for Your Records

 

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                              Part I

 

  1. MACRS system (GDS or ADS)                                GDS

 

  2. Property class                                        7-year

 

  3. Date placed in service                               8/11/16

 

  4. Recovery period                                       7-Year

 

  5. Method and convention                       200%DB/Half-Year

 

  6. Depreciation rate (from tables)                        .1429

 

                              Part II

 

  7. Cost or other basis*                        $10,000

 

  8. Business/investment use

 

                                                    100%

 

  9. Multiply line 7 by line 8                            $10,000

 

 10. Total claimed for section 179

 

     deduction and other items                                -0-

 

 11. Subtract line 10 from line 9. This is

 

     your tentative basis for depreciation                $10,000

 

 12. Multiply line 11 by .50 if the 50%

 

     special depreciation allowance

 

     applies. This is your special

 

     depreciation allowance. Enter -0- if

 

     this is not the year you placed the

 

     property in service, the property is not

 

     qualified property, or you elected not

 

     to claim a special allowance                             -0-

 

 13. Subtract line 12 from line 11. This is

 

     your basis for depreciation                          $10,000

 

 14. Depreciation rate (from line 6)                        .1429

 

 15. Multiply line 13 by line 14. This is your

 

     MACRS depreciation deduction                          $1,429

 

                                                         ========

 

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 * If real estate, do not include cost (basis) of land.

 

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If there are no adjustments to the basis of the property other than depreciation, your depreciation deduction for each subsequent year of the recovery period will be as follows.

 Year       Basis          Percentage   Deduction

 

 2017       $10,000        24.49%       $2,449

 

 2018        10,000        17.49         1,749

 

 2019        10,000        12.49         1,249

 

 2020        10,000         8.93           893

 

 2021        10,000         8.92           892

 

 2022        10,000         8.93           893

 

 2023        10,000         4.46           446

 

 

Examples

The following examples are provided to show you how to use the percentage tables. In both examples, assume the following.

 

• You use the property only for business.

• You use the calendar year as your tax year.

• You use GDS for all the properties.

 

Example 1. You bought a building and land for $120,000 and placed it in service on March 8. The sales contract showed that the building cost $100,000 and the land cost $20,000. It is nonresidential real property. The building's unadjusted basis is its original cost, $100,000.

You refer to the MACRS Percentage Table Guide in Appendix A and find that you should use Table A-7a. March is the third month of your tax year, so multiply the building's unadjusted basis, $100,000, by the percentages for the third month in Table A-7a. Your depreciation deduction for each of the first 3 years is as follows:

 Year       Basis       Percentage      Deduction

 

 1st       $100,000     2.033%          $2,033

 

 2nd        100,000     2.564            2,564

 

 3rd        100,000     2.564            2,564

 

 

Example 2. During the year, you bought a machine (7-year property) for $4,000, office furniture (7-year property) for $1,000, and a computer (5-year property) for $5,000. You placed the machine in service in January, the furniture in September, and the computer in October. You do not elect a section 179 deduction and none of these items is qualified property for purposes of claiming a special depreciation allowance.

You placed property in service during the last 3 months of the year, so you must first determine if you have to use the mid-quarter convention. The total bases of all property you placed in service during the year is $10,000. The $5,000 basis of the computer, which you placed in service during the last 3 months (the fourth quarter) of your tax year, is more than 40% of the total bases of all property ($10,000) you placed in service during the year. Therefore, you must use the mid-quarter convention for all three items.

You refer to the MACRS Percentage Table Guide in Appendix A to determine which table you should use under the mid-quarter convention. The machine is 7-year property placed in service in the first quarter, so you use Table A-2. The furniture is 7-year property placed in service in the third quarter, so you use Table A-4. Finally, because the computer is 5-year property placed in service in the fourth quarter, you use Table A-6. Knowing what table to use for each property, you figure the depreciation for the first 2 years as follows.

 -----------------------------------------------------------

 

 Year     Property      Basis       Percentage     Deduction

 

 -----------------------------------------------------------

 

 1st      Machine      $4,000          25.00         $1,000

 

 2nd      Machine       4,000          21.43            857

 

 -----------------------------------------------------------

 

 1st      Furniture     1,000          10.71            107

 

 2nd      Furniture     1,000          25.51            255

 

 -----------------------------------------------------------

 

 1st      Computer      5,000           5.00            250

 

 2nd      Computer      5,000          38.00          1,900

 

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Sale or Other Disposition Before the Recovery Period Ends

If you sell or otherwise dispose of your property before the end of its recovery period, your depreciation deduction for the year of the disposition will be only part of the depreciation amount for the full year. You have disposed of your property if you have permanently withdrawn it from use in your business or income-producing activity because of its sale, exchange, retirement, abandonment, involuntary conversion, or destruction. After you figure the full-year depreciation amount, figure the deductible part using the convention that applies to the property.

Half-year convention used. For property for which you used a half-year convention, the depreciation deduction for the year of the disposition is half the depreciation determined for the full year.

Mid-quarter convention used. For property for which you used the mid-quarter convention, figure your depreciation deduction for the year of the disposition by multiplying a full year of depreciation by the percentage listed below for the quarter in which you disposed of the property.

 Quarter                   Percentage

 

 First                       12.5%

 

 Second                      37.5

 

 Third                       62.5

 

 Fourth                      87.5

 

 

Example. On December 2, 2013, you placed in service an item of 5-year property costing $10,000. You did not claim a section 179 deduction and the property does not qualify for a special depreciation allowance. Your unadjusted basis for the property was $10,000. You used the mid-quarter convention because this was the only item of business property you placed in service in 2013 and it was placed in service during the last 3 months of your tax year. Your property is in the 5-year property class, so you used Table A-5 to figure your depreciation deduction. Your deductions for 2013, 2014, and 2015 were $500 (5% of $10,000), $3,800 (38% of $10,000), and $2,280 (22.80% of $10,000). You disposed of the property on April 6, 2016. To determine your depreciation deduction for 2016, first figure the deduction for the full year. This is $1,368 (13.68% of $10,000). April is in the second quarter of the year, so you multiply $1,368 by 37.5% to get your depreciation deduction of $513 for 2016.

Mid-month convention used. If you dispose of residential rental or nonresidential real property, figure your depreciation deduction for the year of the disposition by multiplying a full year of depreciation by a fraction. The numerator of the fraction is the number of months (including partial months) in the year that the property is considered in service. The denominator is 12.

Example. On July 2, 2014, you purchased and placed in service residential rental property. The property cost $100,000, not including the cost of land. You used Table A-6 to figure your MACRS depreciation for this property. You sold the property on March 2, 2016. You file your tax return based on the calendar year.

A full year of depreciation for 2016 is $3,636. This is $100,000 multiplied by .03636 (the percentage for the seventh month of the third recovery year) from Table A-6. You then apply the mid-month convention for the 2 1/2 months of use in 2016. Treat the month of disposition as one-half month of use. Multiply $3,636 by the fraction, 2.5 over 12, to get your 2016 depreciation deduction of $757.50.

Figuring the Deduction Without Using the Tables

Instead of using the rates in the percentage tables to figure your depreciation deduction, you can figure it yourself. Before making the computation each year, you must reduce your adjusted basis in the property by the depreciation claimed the previous year.

CAUTION: Figuring MACRS deductions without using the tables generally will result in a slightly different amount than using the tables.

Declining Balance Method

When using a declining balance method, you apply the same depreciation rate each year to the adjusted basis of your property. You must use the applicable convention for the first tax year and you must switch to the straight line method beginning in the first year for which it will give an equal or greater deduction. The straight line method is explained later.

You figure depreciation for the year you place property in service as follows.

 

1. Multiply your adjusted basis in the property by the declining balance rate.

2. Apply the applicable convention.

 

You figure depreciation for all other years (before the year you switch to the straight line method) as follows.

 

1. Reduce your adjusted basis in the property by the depreciation allowed or allowable in earlier years.

2. Multiply this new adjusted basis by the same declining balance rate used in earlier years.

 

If you dispose of property before the end of its recovery period, see Using the Applicable Convention, later, for information on how to figure depreciation for the year you dispose of it.

Figuring depreciation under the declining balance method and switching to the straight line method is illustrated in Example 1, later, under Examples.

Declining balance rate. You figure your declining balance rate by dividing the specified declining balance percentage (150% or 200% changed to a decimal) by the number of years in the property's recovery period. For example, for 3-year property depreciated using the 200% declining balance method, divide 2.00 (200%) by 3 to get 0.6667, or a 66.67% declining balance rate. For 15-year property depreciated using the 150% declining balance method, divide 1.50 (150%) by 15 to get 0.10, or a 10% declining balance rate.

The following table shows the declining balance rate for each property class and the first year for which the straight line method gives an equal or greater deduction.

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 Property                 Declining Balance

 

 Class         Method            Rate         Year

 

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 3-year        200% DB              66.667%    3rd

 

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 5-year        200% DB              40.0       4th

 

 -------------------------------------------------

 

 7-year        200% DB              28.571     5th

 

 -------------------------------------------------

 

 10-year       200% DB              20.0       7th

 

 -------------------------------------------------

 

 15-year       150% DB              10.0       7th

 

 -------------------------------------------------

 

 20-year       150% DB               7.5       9th

 

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Straight Line Method

When using the straight line method, you apply a different depreciation rate each year to the adjusted basis of your property. You must use the applicable convention in the year you place the property in service and the year you dispose of the property.

You figure depreciation for the year you place property in service as follows.

 

1. Multiply your adjusted basis in the property by the straight line rate.

2. Apply the applicable convention.

 

You figure depreciation for all other years (including the year you switch from the declining balance method to the straight line method) as follows.

 

1. Reduce your adjusted basis in the property by the depreciation allowed or allowable in earlier years (under any method).

2. Determine the depreciation rate for the year.

3. Multiply the adjusted basis figured in (1) by the depreciation rate figured in (2).

 

If you dispose of property before the end of its recovery period, see Using the Applicable Convention, later, for information on how to figure depreciation for the year you dispose of it.

Straight line rate. You determine the straight line depreciation rate for any tax year by dividing the number 1 by the years remaining in the recovery period at the beginning of that year. When figuring the number of years remaining, you must take into account the convention used in the year you placed the property in service. If the number of years remaining is less than 1, the depreciation rate for that tax year is 1.0 (100%).

Using the Applicable Convention

The applicable convention (discussed earlier under Which Convention Applies) affects how you figure your depreciation deduction for the year you place your property in service and for the year you dispose of it. It determines how much of the recovery period remains at the beginning of each year, so it also affects the depreciation rate for property you depreciate under the straight line method. See Straight line rate in the previous discussion. Use the applicable convention as explained in the following discussions.

Half-year convention. If this convention applies, you deduct a half-year of depreciation for the first year and the last year that you depreciate the property. You deduct a full year of depreciation for any other year during the recovery period.

Figure your depreciation deduction for the year you place the property in service by dividing the depreciation for a full year by 2. If you dispose of the property before the end of the recovery period, figure your depreciation deduction for the year of the disposition the same way. If you hold the property for the entire recovery period, your depreciation deduction for the year that includes the final 6 months of the recovery period is the amount of your unrecovered basis in the property.

Mid-quarter convention. If this convention applies, the depreciation you can deduct for the first year you depreciate the property depends on the quarter in which you place the property in service.

A quarter of a full 12-month tax year is a period of 3 months. The first quarter in a year begins on the first day of the tax year. The second quarter begins on the first day of the fourth month of the tax year. The third quarter begins on the first day of the seventh month of the tax year. The fourth quarter begins on the first day of the tenth month of the tax year. A calendar year is divided into the following quarters.

 Quarter                    Months

 

 First            January, February, March

 

 Second                   April, May, June

 

 Third             July, August, September

 

 Fourth        October, November, December

 

 

Figure your depreciation deduction for the year you place the property in service by multiplying the depreciation for a full year by the percentage listed below for the quarter you place the property in service.

 Quarter       Percentage

 

 First              87.5%

 

 Second             62.5

 

 Third              37.5

 

 Fourth             12.5

 

 

If you dispose of the property before the end of the recovery period, figure your depreciation deduction for the year of the disposition by multiplying a full year of depreciation by the percentage listed below for the quarter you dispose of the property.

 Quarter         Percentage

 

 First                12.5%

 

 Second               37.5

 

 Third                62.5

 

 Fourth               87.5

 

 

If you hold the property for the entire recovery period, your depreciation deduction for the year that includes the final quarter of the recovery period is the amount of your unrecovered basis in the property.

Mid-month convention. If this convention applies, the depreciation you can deduct for the first year that you depreciate the property depends on the month in which you place the property in service. Figure your depreciation deduction for the year you place the property in service by multiplying the depreciation for a full year by a fraction. The numerator of the fraction is the number of full months in the year that the property is in service plus 1/2 (or 0.5). The denominator is 12.

If you dispose of the property before the end of the recovery period, figure your depreciation deduction for the year of the disposition the same way. If you hold the property for the entire recovery period, your depreciation deduction for the year that includes the final month of the recovery period is the amount of your unrecovered basis in the property.

Example. You use the calendar year and place nonresidential real property in service in August. The property is in service 4 full months (September, October, November, and December). Your numerator is 4.5 (4 full months plus 0.5). You multiply the depreciation for a full year by 4.5/12, or 0.375.

Examples

The following examples show how to figure depreciation under MACRS without using the percentage tables. Figures are rounded for purposes of the examples. Assume for all the examples that you use a calendar year as your tax year.

Example 1--200% DB method and half-year convention. In February, you placed in service depreciable property with a 5-year recovery period and a basis of $1,000. You do not elect to take the section 179 deduction and the property does not qualify for a special depreciation allowance. You use GDS and the 200% declining balance (DB) method to figure your depreciation. When the straight line (SL) method results in an equal or larger deduction, you switch to the SL method. You did not place any property in service in the last 3 months of the year, so you must use the half-year convention.

First year. You figure the depreciation rate under the 200% DB method by dividing 2 (200%) by 5 (the number of years in the recovery period). The result is 40%. You multiply the adjusted basis of the property ($1,000) by the 40% DB rate. You apply the half-year convention by dividing the result ($400) by 2. Depreciation for the first year under the 200% DB method is $200.

You figure the depreciation rate under the straight line (SL) method by dividing 1 by 5, the number of years in the recovery period. The result is 20%.You multiply the adjusted basis of the property ($1,000) by the 20% SL rate. You apply the half-year convention by dividing the result ($200) by 2. Depreciation for the first year under the SL method is $100.

The DB method provides a larger deduction, so you deduct the $200 figured under the 200% DB method.

Second year. You reduce the adjusted basis ($1,000) by the depreciation claimed in the first year ($200). You multiply the result ($800) by the DB rate (40%). Depreciation for the second year under the 200% DB method is $320.

You figure the SL depreciation rate by dividing 1 by 4.5, the number of years remaining in the recovery period. (Based on the half-year convention, you used only half a year of the recovery period in the first year.) You multiply the reduced adjusted basis ($800) by the result (22.22%). Depreciation under the SL method for the second year is $178.

The DB method provides a larger deduction, so you deduct the $320 figured under the 200% DB method.

Third year. You reduce the adjusted basis ($800) by the depreciation claimed in the second year ($320). You multiply the result ($480) by the DB rate (40%). Depreciation for the third year under the 200% DB method is $192.

You figure the SL depreciation rate by dividing 1 by 3.5. You multiply the reduced adjusted basis ($480) by the result (28.57%). Depreciation under the SL method for the third year is $137.

The DB method provides a larger deduction, so you deduct the $192 figured under the 200% DB method.

Fourth year. You reduce the adjusted basis ($480) by the depreciation claimed in the third year ($192). You multiply the result ($288) by the DB rate (40%). Depreciation for the fourth year under the 200% DB method is $115.

You figure the SL depreciation rate by dividing 1 by 2.5. You multiply the reduced adjusted basis ($288) by the result (40%). Depreciation under the SL method for the fourth year is $115.

The SL method provides an equal deduction, so you switch to the SL method and deduct the $115.

Fifth year. You reduce the adjusted basis ($288) by the depreciation claimed in the fourth year ($115) to get the reduced adjusted basis of $173. You figure the SL depreciation rate by dividing 1 by 1.5. You multiply the reduced adjusted basis ($173) by the result (66.67%). Depreciation under the SL method for the fifth year is $115.

Sixth year. You reduce the adjusted basis ($173) by the depreciation claimed in the fifth year ($115) to get the reduced adjusted basis of $58. There is less than one year remaining in the recovery period, so the SL depreciation rate for the sixth year is 100%. You multiply the reduced adjusted basis ($58) by 100% to arrive at the depreciation deduction for the sixth year ($58).

Example 2--SL method and mid-month convention. In January, you bought and placed in service a building for $100,000 that is nonresidential real property with a recovery period of 39 years. The adjusted basis of the building is its cost of $100,000. You use GDS, the straight line (SL) method, and the mid-month convention to figure your depreciation.

First year. You figure the SL depreciation rate for the building by dividing 1 by 39 years. The result is .02564. The depreciation for a full year is $2,564 ($100,000 × .02564). Under the mid-month convention, you treat the property as placed in service in the middle of January. You get 11.5 months of depreciation for the year. Expressed as a decimal, the fraction of 11.5 months divided by 12 months is .958. Your first-year depreciation for the building is $2,456 ($2,564 × .958).

Second year. You subtract $2,456 from $100,000 to get your adjusted basis of $97,544 for the second year. The SL rate is .02629. This is 1 divided by the remaining recovery period of 38.042 years (39 years reduced by 11.5 months or .958 year). Your depreciation for the building for the second year is $2,564 ($97,544 × .02629).

Third year. The adjusted basis is $94,980 ($97,544 - $2,564). The SL rate is .027 (1 divided by 37.042 remaining years). Your depreciation for the third year is $2,564 ($94,980 × .027).

Example 3--200% DB method and mid-quarter convention. During the year, you bought and placed in service in your business the following items.

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                                    Month Placed

 

 Item                               in Service         Cost

 

 ----------------------------------------------------------------

 

 Safe                               January           $4,000

 

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 Office furniture                   September          1,000

 

 ----------------------------------------------------------------

 

 Computer (not listed property)     October            5,000

 

 ----------------------------------------------------------------

 

 

You do not elect a section 179 deduction and these items do not qualify for a special depreciation allowance. You use GDS and the 200% declining balance (DB) method to figure the depreciation. The total bases of all property you placed in service this year is $10,000. The basis of the computer ($5,000) is more than 40% of the total bases of all property placed in service during the year ($10,000), so you must use the mid-quarter convention. This convention applies to all three items of property. The safe and office furniture are 7-year property and the computer is 5-year property.

First and second year depreciation for safe. The 200% DB rate for 7-year property is .28571. You determine this by dividing 2.00 (200%) by 7 years. The depreciation for the safe for a full year is $1,143 ($4,000 × .28571). You placed the safe in service in the first quarter of your tax year, so you multiply $1,143 by 87.5% (the mid-quarter percentage for the first quarter). The result, $1,000, is your deduction for depreciation on the safe for the first year.

For the second year, the adjusted basis of the safe is $3,000. You figure this by subtracting the first year's depreciation ($1,000) from the basis of the safe ($4,000). Your depreciation deduction for the second year is $857 ($3,000 × .28571).

First and second year depreciation for furniture. The furniture is also 7-year property, so you use the same 200% DB rate of .28571. You multiply the basis of the furniture ($1,000) by .28571 to get the depreciation of $286 for the full year. You placed the furniture in service in the third quarter of your tax year, so you multiply $286 by 37.5% (the mid-quarter percentage for the third quarter). The result, $107, is your deduction for depreciation on the furniture for the first year.

For the second year, the adjusted basis of the furniture is $893. You figure this by subtracting the first year's depreciation ($107) from the basis of the furniture ($1,000). Your depreciation for the second year is $255 ($893 × .28571).

First and second year depreciation for computer. The 200% DB rate for 5-year property is .40. You determine this by dividing 2.00 (200%) by 5 years. The depreciation for the computer for a full year is $2,000 ($5,000 × .40). You placed the computer in service in the fourth quarter of your tax year, so you multiply the $2,000 by 12.5% (the mid-quarter percentage for the fourth quarter). The result, $250, is your deduction for depreciation on the computer for the first year.

For the second year, the adjusted basis of the computer is $4,750. You figure this by subtracting the first year's depreciation ($250) from the basis of the computer ($5,000). Your depreciation deduction for the second year is $1,900 ($4,750 × .40).

Example 4--200% DB method and half-year convention. Last year, in July, you bought and placed in service in your business a new item of 7-year property. This was the only item of property you placed in service last year. The property cost $39,000 and you elected a $24,000 section 179 deduction. You also took a special depreciation allowance of $7,500. Your unadjusted basis for the property is $7,500. Because you did not place any property in service in the last 3 months of your tax year, you used the half-year convention. You figured your deduction using the percentages in Table A-1 for 7-year property. Last year, your depreciation was $1,072 ($7,500 × 14.29%).

In July of this year, your property was vandalized. You had a deductible casualty loss of $3,000. You spent $3,500 to put the property back in operational order. Your adjusted basis at the end of this year is $6,928. You figured this by first subtracting the first year's depreciation ($1,072) and the casualty loss ($3,000) from the unadjusted basis of $7,500. To this amount ($3,428), you then added the $3,500 repair cost.

You cannot use the table percentages to figure your depreciation for this property for this year because of the adjustments to basis. You must figure the deduction yourself. You determine the DB rate by dividing 2.00 (200%) by 7 years. The result is .28571 or 28.571%. You multiply the adjusted basis of your property ($6,928) by the declining balance rate of .28571 to get your depreciation deduction of $1,979 for this year.

Figuring the Deduction for Property Acquired in a Nontaxable Exchange

If your property has a carryover basis because you acquired it in a nontaxable transfer such as a like-kind exchange or involuntary conversion, you must generally figure depreciation for the property as if the transfer had not occurred. However, see Like-kind exchanges and involuntary conversions, earlier, in chapter 3 under How Much Can You Deduct and Property Acquired in a Like-kind Exchange or Involuntary Conversion next.

Property Acquired in a Like-kind Exchange or Involuntary Conversion

You generally must depreciate the carryover basis of property acquired in a like-kind exchange or involuntary conversion over the remaining recovery period of the property exchanged or involuntarily converted. You also generally continue to use the same depreciation method and convention used for the exchanged or involuntarily converted property. This applies only to acquired property with the same or a shorter recovery period and the same or more accelerated depreciation method than the property exchanged or involuntarily converted. The excess basis (the part of the acquired property's basis that exceeds its carryover basis), if any, of the acquired property is treated as newly placed in service property.

For acquired property that has a longer recovery period or less accelerated depreciation method than the exchanged or involuntarily converted property, you generally must depreciate the carryover basis of the acquired property as if it were placed in service in the same tax year as the exchanged or involuntarily converted property. You also generally continue to use the longer recovery period and less accelerated depreciation method of the acquired property.

If the MACRS property you acquired in the exchange or involuntary conversion is qualified property, discussed earlier in chapter 3 under What Is Qualified Property, you can claim a special depreciation allowance on the carryover basis. Special rules apply to vehicles acquired in a trade-in. For information on how to figure depreciation for a vehicle acquired in a trade-in that is subject to the passenger automobile limits, see Deductions For Passenger Automobiles Acquired in a Trade-in under Do the Passenger Automobile Limits Apply in chapter 5.

Election out. Instead of using the above rules, you can elect, for depreciation purposes, to treat the adjusted basis of the exchanged or involuntarily converted property as if disposed of at the time of the exchange or involuntary conversion. Treat the carryover basis and excess basis, if any, for the acquired property as if placed in service the later of the date you acquired it or the time of the disposition of the exchanged or involuntarily converted property. The depreciable basis of the new property is the adjusted basis of the exchanged or involuntarily converted property plus any additional amount you paid for it. The election, if made, applies to both the acquired property and the exchanged or involuntarily converted property. This election does not affect the amount of gain or loss recognized on the exchange or involuntary conversion.

When to make the election. You must make the election on a timely filed return (including extensions) for the year of replacement. The election must be made separately by each person acquiring replacement property. In the case of a partnership, S corporation, or consolidated group, the election is made by the partnership, by the S corporation, or by the common parent of a consolidated group, respectively. Once made, the election may not be revoked without IRS consent.

For more information and special rules, see the Instructions for Form 4562.

Property Acquired in a Nontaxable Transfer

You must depreciate MACRS property acquired by a corporation or partnership in certain nontaxable transfers over the property's remaining recovery period in the transferor's hands, as if the transfer had not occurred. You must continue to use the same depreciation method and convention as the transferor. You can depreciate the part of the property's basis that exceeds its carryover basis (the transferor's adjusted basis in the property) as newly purchased MACRS property.

The nontaxable transfers covered by this rule include the following.

 

• A distribution in complete liquidation of a subsidiary.

• A transfer to a corporation controlled by the transferor.

• An exchange of property solely for corporate stock or securities in a reorganization.

• A contribution of property to a partnership in exchange for a partnership interest.

• A partnership distribution of property to a partner.

 

Figuring the Deduction for a Short Tax Year

You cannot use the MACRS percentage tables to determine depreciation for a short tax year. A short tax year is any tax year with less than 12 full months. This section discusses the rules for determining the depreciation deduction for property you place in service or dispose of in a short tax year. It also discusses the rules for determining depreciation when you have a short tax year during the recovery period (other than the year the property is placed in service or disposed of).

For more information on figuring depreciation for a short tax year, see Revenue Procedure 89-15, 1989-1 C.B. 816.

Using the Applicable Convention in a Short Tax Year

The applicable convention establishes the date property is treated as placed in service and disposed of. Depreciation is allowable only for that part of the tax year the property is treated as in service. The recovery period begins on the placed in service date determined by applying the convention. The remaining recovery period at the beginning of the next tax year is the full recovery period less the part for which depreciation was allowable in the first tax year.

The following discussions explain how to use the applicable convention in a short tax year.

Mid-month convention. Under the mid-month convention, you always treat your property as placed in service or disposed of on the midpoint of the month it is placed in service or disposed of. You apply this rule without regard to your tax year.

Half-year convention. Under the half-year convention, you treat property as placed in service or disposed of on the midpoint of the tax year it is placed in service or disposed of.

First or last day of month. For a short tax year beginning on the first day of a month or ending on the last day of a month, the tax year consists of the number of months in the tax year. If the short tax year includes part of a month, you generally include the full month in the number of months in the tax year. You determine the midpoint of the tax year by dividing the number of months in the tax year by 2. For the half-year convention, you treat property as placed in service or disposed of on either the first day or the midpoint of a month.

For example, a short tax year that begins on June 20 and ends on December 31 consists of 7 months. You use only full months for this determination, so you treat the tax year as beginning on June 1 instead of June 20. The midpoint of the tax year is the middle of September (3 1/2 months from the beginning of the tax year). You treat property as placed in service or disposed of on this midpoint.

Example. Tara Corporation, a calendar year taxpayer, was incorporated on March 15. For purposes of the half-year convention, it has a short tax year of 10 months, ending on December 31, 2016. During the short tax year, Tara placed property in service for which it uses the half-year convention. Tara treats this property as placed in service on the first day of the sixth month of the short tax year, or August 1, 2016.

Not on first or last day of month. For a short tax year not beginning on the first day of a month and not ending on the last day of a month, the tax year consists of the number of days in the tax year. You determine the midpoint of the tax year by dividing the number of days in the tax year by 2. For the half-year convention, you treat property as placed in service or disposed of on either the first day or the midpoint of a month. If the result of dividing the number of days in the tax year by 2 is not the first day or the midpoint of a month, you treat the property as placed in service or disposed of on the nearest preceding first day or midpoint of a month.

Mid-quarter convention. To determine if you must use the mid-quarter convention, compare the basis of property you place in service in the last 3 months of your tax year to that of property you place in service during the full tax year. The length of your tax year does not matter. If you have a short tax year of 3 months or less, use the mid-quarter convention for all applicable property you place in service during that tax year.

You treat property under the mid-quarter convention as placed in service or disposed of on the midpoint of the quarter of the tax year in which it is placed in service or disposed of. Divide a short tax year into 4 quarters and determine the midpoint of each quarter.

For a short tax year of 4 or 8 full calendar months, determine quarters on the basis of whole months. The midpoint of each quarter is either the first day or the midpoint of a month. Treat property as placed in service or disposed of on this midpoint.

To determine the midpoint of a quarter for a short tax year of other than 4 or 8 full calendar months, complete the following steps.

 

1. Determine the number of days in your short tax year.

2. Determine the number of days in each quarter by dividing the number of days in your short tax year by 4.

3. Determine the midpoint of each quarter by dividing the number of days in each quarter by 2.

 

If the result of (3) gives you a midpoint of a quarter that is on a day other than the first day or midpoint of a month, treat the property as placed in service or disposed of on the nearest preceding first day or midpoint of that month.

Example. Tara Corporation, a calendar year taxpayer, was incorporated and began business on March 15. It has a short tax year of 9 1/2 months, ending on December 31. During December, it placed property in service for which it must use the mid-quarter convention. This is a short tax year of other than 4 or 8 full calendar months, so it must determine the midpoint of each quarter.

 

1. First, it determines that its short tax year beginning March 15 and ending December 31 consists of 292 days.

2. Next, it divides 292 by 4 to determine the length of each quarter, 73 days.

3. Finally, it divides 73 by 2 to determine the midpoint of each quarter, the 37th day.

 

The following table shows the quarters of Tara Corporation's short tax year, the midpoint of each quarter, and the date in each quarter that Tara must treat its property as placed in service.

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                                            Placed in

 

 Quarter                 Midpoint           Service

 

 ----------------------------------------------------------------

 

 3/15 - 5/26                  4/20                  4/15

 

 ----------------------------------------------------------------

 

 5/27 - 8/07                  7/02                  7/01

 

 ----------------------------------------------------------------

 

 8/08 - 10/19                 9/13                  9/01

 

 ----------------------------------------------------------------

 

 10/20 - 12/31               11/25                 11/15

 

 ----------------------------------------------------------------

 

 

The last quarter of the short tax year begins on October 20, which is 73 days from December 31, the end of the tax year. The 37th day of the last quarter is November 25, which is the midpoint of the quarter. November 25 is not the first day or the midpoint of November, so Tara Corporation must treat the property as placed in service in the middle of November (the nearest preceding first day or midpoint of that month).

Property Placed in Service in a Short Tax Year

To figure your MACRS depreciation deduction for the short tax year, you must first determine the depreciation for a full tax year. You do this by multiplying your basis in the property by the applicable depreciation rate. Then, determine the depreciation for the short tax year. Do this by multiplying the depreciation for a full tax year by a fraction. The numerator (top number) of the fraction is the number of months (including parts of a month) the property is treated as in service during the tax year (applying the applicable convention). The denominator (bottom number) is 12. See Depreciation After a Short Tax Year, later, for information on how to figure depreciation in later years.

Example 1--half-year convention. Tara Corporation, with a short tax year beginning March 15 and ending December 31, placed in service on March 16 an item of 5-year property with a basis of $1,000. This is the only property the corporation placed in service during the short tax year. Tara does not elect to claim a section 179 deduction and the property does not qualify for a special depreciation allowance. The depreciation method for this property is the 200% declining balance method. The depreciation rate is 40% and Tara applies the half-year convention.

Tara treats the property as placed in service on August 1. The determination of this August 1 date is explained in the example illustrating the half-year convention under Using the Applicable Convention in a Short Tax Year, earlier. Tara is allowed 5 months of depreciation for the short tax year that consists of 10 months. The corporation first multiplies the basis ($1,000) by 40% (the declining balance rate) to get the depreciation for a full tax year of $400. The corporation then multiplies $400 by 5/12 to get the short tax year depreciation of $167.

Example 2--mid-quarter convention. Tara Corporation, with a short tax year beginning March 15 and ending on December 31, placed in service on October 16 an item of 5-year property with a basis of $1,000. Tara does not elect to claim a section 179 deduction and the property does not qualify for a special depreciation allowance. The depreciation method for this property is the 200% declining balance method. The depreciation rate is 40%. The corporation must apply the mid-quarter convention because the property was the only item placed in service that year and it was placed in service in the last 3 months of the tax year.

Tara treats the property as placed in service on September 1. This date is shown in the table provided in the example illustrating the mid-quarter convention under Using the Applicable Convention in a Short Tax Year, earlier, for property that Tara Corporation placed in service during the quarter that begins on August 8 and ends on October 19. Under MACRS, Tara is allowed 4 months of depreciation for the short tax year that consists of 10 months. The corporation first multiplies the basis ($1,000) by 40% to get the depreciation for a full tax year of $400. The corporation then multiplies $400 by 4/12 to get the short tax year depreciation of $133.

Property Placed in Service Before a Short Tax Year

If you have a short tax year after the tax year in which you began depreciating property, you must change the way you figure depreciation for that property. If you were using the percentage tables, you can no longer use them. You must figure depreciation for the short tax year and each later tax year as explained next.

Depreciation After a Short Tax Year

You can use either of the following methods to figure the depreciation for years after a short tax year.

 

• The simplified method.

• The allocation method.

 

You must use the method you choose consistently.

Using the simplified method for a 12-month year. Under the simplified method, you figure the depreciation for a later 12-month year in the recovery period by multiplying the adjusted basis of your property at the beginning of the year by the applicable depreciation rate.

Example. Assume the same facts as in Example 1 under Property Placed in Service in a Short Tax Year, earlier. The Tara Corporation claimed depreciation of $167 for its short tax year. The adjusted basis on January 1 of the next year is $833 ($1,000 - $167). Tara's depreciation for that next year is 40% of $833, or $333.

Using the simplified method for a short year. If a later tax year in the recovery period is a short tax year, you figure depreciation for that year by multiplying the adjusted basis of the property at the beginning of the tax year by the applicable depreciation rate, and then by a fraction. The fraction's numerator is the number of months (including parts of a month) in the tax year. Its denominator is 12.

Using the simplified method for an early disposition. If you dispose of property in a later tax year before the end of the recovery period, determine the depreciation for the year of disposition by multiplying the adjusted basis of the property at the beginning of the tax year by the applicable depreciation rate and then multiplying the result by a fraction. The fraction's numerator is the number of months (including parts of a month) the property is treated as in service during the tax year (applying the applicable convention). Its denominator is 12.

Using the allocation method for a 12-month or short tax year. Under the allocation method, you figure the depreciation for each later tax year by allocating to that year the depreciation attributable to the parts of the recovery years that fall within that year. Whether your tax year is a 12-month or short tax year, you figure the depreciation by determining which recovery years are included in that year. For each recovery year included, multiply the depreciation attributable to that recovery year by a fraction. The fraction's numerator is the number of months (including parts of a month) that are included in both the tax year and the recovery year. Its denominator is 12. The allowable depreciation for the tax year is the sum of the depreciation figured for each recovery year.

Example. Assume the same facts as in Example 1 under Property Placed in Service in a Short Tax Year, earlier. The Tara Corporation's first tax year after the short tax year is a full year of 12 months, beginning January 1 and ending December 31. The first recovery year for the 5-year property placed in service during the short tax year extends from August 1 to July 31. Tara deducted 5 months of the first recovery year on its short-year tax return. Seven months of the first recovery year and 5 months of the second recovery year fall within the next tax year. The depreciation for the next tax year is $333, which is the sum of the following.

 

• $233--The depreciation for the first recovery year ($400 × 7/12).

• $100--The depreciation for the second recovery year. This is figured by multiplying the adjusted basis of $600 ($1,000 - $400) by 40%, then multiplying the $240 result by 5/12.

 

Using the allocation method for an early disposition. If you dispose of property before the end of the recovery period in a later tax year, determine the depreciation for the year of disposition by multiplying the depreciation figured for each recovery year or part of a recovery year included in the tax year by a fraction. The numerator of the fraction is the number of months (including parts of months) the property is treated as in service in the tax year (applying the applicable convention). The denominator is 12. If there is more than one recovery year in the tax year, you add together the depreciation for each recovery year.

How Do You Use General Asset Accounts?

Terms you may need to know (see Glossary):

 

• Adjusted basis

• Amortization

• Amount realized

• Basis

• Convention

• Disposition

• Exchange

• Placed in service

• Recovery period

• Section 1245 property

• Unadjusted basis

 

To make it easier to figure MACRS depreciation, you can group separate properties into one or more general asset accounts (GAAs). You then can depreciate all the properties in each account as a single item of property.

Property you cannot include. You cannot include property in a GAA if you use it in both a personal activity and a trade or business (or for the production of income) in the year in which you first place it in service. If property you included in a GAA is later used in a personal activity, see Terminating GAA Treatment, later.

Property generating foreign source income. For information on the GAA treatment of property that generates foreign source income, see sections 1.168(i)-1(c)(1)(ii) and (f) of the regulations.

Change in use. Special rules apply to figuring depreciation for property in a GAA for which the use changes during the tax year. Examples include a change in use resulting in a shorter recovery period and/or more accelerated depreciation method or a change in use resulting in a longer recovery period and/or a less accelerated depreciation method. See sections 1.168(i)-1(h) and 1.168(i)-4 of the regulations.

Grouping Property

Each GAA must include only property you placed in service in the same tax year and that has the following in common.

 

• Recovery period.

• Depreciation method.

• Convention.

 

The following rules also apply when you establish a GAA.

 

Mid-quarter convention. Property subject to the mid-quarter convention can only be grouped into a GAA with property placed in service in the same quarter of the tax year.

Mid-month convention. Property subject to the mid-month convention can only be grouped into a GAA with property placed in service in the same month of the tax year.

Passenger automobiles. Passenger automobiles subject to the limits on passenger automobile depreciation must be grouped into a separate GAA.

 

See section 1.168(i)-1(c)(2)(ii) of the regulations for additional rules that apply when you establish a GAA.

Figuring Depreciation for a GAA

After you have set up a GAA, you generally figure the MACRS depreciation for it by using the applicable depreciation method, recovery period, and convention for the property in the GAA. For each GAA, record the depreciation allowance in a separate depreciation reserve account.

Example. Make & Sell, a calendar-year corporation, set up a GAA for ten machines. The machines cost a total of $10,000 and were placed in service in June 2016. One of the machines cost $8,200 and the rest cost a total of $1,800. This GAA is depreciated under the 200% declining balance method with a 5-year recovery period and a half-year convention. Make & Sell did not claim the section 179 deduction on the machines and the machines did not qualify for a special depreciation allowance. The depreciation allowance for 2016 is $2,000 [($10,000 × 40%) ÷ 2]. As of January 1, 2017, the depreciation reserve account is $2,000.

Passenger automobiles. To figure depreciation on passenger automobiles in a GAA, apply the deduction limits discussed in chapter 5 under Do the Passenger Automobile Limits Apply. Multiply the amount determined using these limits by the number of automobiles originally included in the account, reduced by the total number of automobiles removed from the GAA as discussed in Terminating GAA Treatment, later.

Disposing of GAA Property

When you dispose of property included in a GAA, the following rules generally apply.

 

• Neither the unadjusted depreciable basis (defined later) nor the depreciation reserve account of the GAA is affected. You continue to depreciate the account as if the disposition had not occurred.

• The property is treated as having an adjusted basis of zero, so you cannot realize a loss on the disposition. If the property is transferred to a supplies, scrap, or similar account, its basis in that account is zero.

• Any amount realized on the disposition is treated as ordinary income, up to the limit discussed later under Treatment of amount realized.

 

However, these rules do not apply to any disposition described later under Terminating GAA Treatment.

Disposition. Property in a GAA is considered disposed of when you do any of the following.

 

• Permanently withdraw it from use in your trade or business or from the production of income.

• Transfer it to a supplies, scrap, or similar account.

• Sell, exchange, retire, physically abandon, or destroy it.

 

The retirement of a structural component of real property is not a disposition unless it is a partial disposition. See section 1.168(i)-1(e)(1) of the regulations.

Treatment of amount realized. When you dispose of property in a GAA, you must recognize any amount realized from the disposition as ordinary income, up to a limit. The limit is:

 

1. The unadjusted depreciable basis of the GAA, plus

2. Any expensed costs for property in the GAA that are subject to recapture as depreciation (not including any expensed costs for property that you removed from the GAA under the rules discussed later under Terminating GAA Treatment), minus

3. Any amount previously recognized as ordinary income upon the disposition of other property from the GAA.

 

Unadjusted depreciable basis. The unadjusted depreciable basis of a GAA is the total of the unadjusted depreciable bases of all the property in the GAA. The unadjusted depreciable basis of an item of property in a GAA is the amount you would use to figure gain or loss on its sale, but figured without reducing your original basis by any depreciation allowed or allowable in earlier years. However, you do reduce your original basis by other amounts, including any amortization deduction, section 179 deduction, special depreciation allowance, and electric vehicle credit.

Expensed costs. Expensed costs that are subject to recapture as depreciation include the following.

 

1. The section 179 deduction.

2. Amortization deductions for the following.

 

a. Pollution control facilities.

b. Removal of barriers for the elderly and disabled.

c. Tertiary injectants.

d. Reforestation expenses.

Example 1. The facts are the same as in the example under Figuring Depreciation for a GAA, earlier. In February 2017, Make & Sell sells the machine that cost $8,200 to an unrelated person for $9,000. The machine is treated as having an adjusted basis of zero.

On its 2017 tax return, Make & Sell recognizes the $9,000 amount realized as ordinary income because it is not more than the GAA's unadjusted depreciable basis ($10,000) plus any expensed cost (for example, the section 179 deduction) for property in the GAA ($0), minus any amounts previously recognized as ordinary income because of dispositions of other property from the GAA ($0).

The unadjusted depreciable basis and depreciation reserve of the GAA are not affected by the sale of the machine. The depreciation allowance for the GAA in 2017 is $3,200 [($10,000 - $2,000) × 40%].

Example 2. Assume the same facts as in Example 1. In June 2018, Make & Sell sells seven machines to an unrelated person for a total of $1,100. These machines are treated as having an adjusted basis of zero.

On its 2018 tax return, Make & Sell recognizes $1,000 as ordinary income. This is the GAA's unadjusted depreciable basis ($10,000) plus the expensed costs ($0), minus the amount previously recognized as ordinary income ($9,000). The remaining amount realized of $100 ($1,100 - $1,000) is section 1231 gain (discussed in chapter 3 of Pub. 544).

The unadjusted depreciable basis and depreciation reserve of the GAA are not affected by the disposition of the machines. The depreciation allowance for the GAA in 2018 is $1,920 [($10,000 - $5,200) × 40%].

Terminating GAA Treatment

You must remove the following property from a GAA.

 

• Property held by a partnership that terminates under section 708(b)(1)(B).

• Property you dispose of in a nonrecognition transaction or an abusive transaction.

• Property you dispose of in a qualifying disposition or in a disposition of all the property in the GAA, if you choose to terminate GAA treatment.

• Property you dispose of in a like-kind exchange or an involuntary conversion.

• Property you change to personal use.

• Property for which you must recapture any allowable credit or deduction, such as the investment credit, the credit for qualified electric vehicles, the section 179 deduction, or the deduction for clean-fuel vehicles and clean-fuel vehicle refueling property placed in service before January 1, 2006.

 

If you remove property from a GAA, you must make the following adjustments.

 

1. Reduce the unadjusted depreciable basis of the GAA by the unadjusted depreciable basis of the property as of the first day of the tax year in which the disposition, change in use, partnership technical termination, or recapture event occurs. You can use any reasonable method that is consistently applied to determine the unadjusted depreciable basis of the property you remove from a GAA.

2. Reduce the depreciation reserve account by the depreciation allowed or allowable for the property (computed in the same way as computed for the GAA) as of the end of the tax year immediately preceding the year in which the disposition, change in use, or recapture event occurs.

 

These adjustments have no effect on the recognition and character of prior dispositions subject to the rules discussed earlier under Disposing of GAA Property.

Nonrecognition transactions. If you dispose of GAA property in a nonrecognition transaction, you must remove it from the GAA. The following are nonrecognition transactions.

 

• The receipt by one corporation of property distributed in complete liquidation of another corporation.

• The transfer of property to a corporation solely in exchange for stock in that corporation if the transferor is in control of the corporation immediately after the exchange.

• The transfer of property by a corporation that is a party to a reorganization in exchange solely for stock and securities in another corporation that is also a party to the reorganization.

• The contribution of property to a partnership in exchange for an interest in the partnership.

• The distribution of property (including money) from a partnership to a partner.

• Any transaction between members of the same affiliated group during any year for which the group makes a consolidated return.

 

Rules for recipient (transferee). The recipient of the property (the person to whom it is transferred) must include your (the transferor's) adjusted basis in the property in a GAA. If you transferred either all of the property, the last item of property, or the remaining portion of the last item of property, in a GAA, the recipient's basis in the property is the result of the following.

 

• The adjusted depreciable basis of the GAA as of the beginning of your tax year in which the transaction takes place, minus

• The depreciation allowable to you for the year of the transfer.

 

For this purpose, the adjusted depreciable basis of a GAA is the unadjusted depreciable basis of the GAA minus any depreciation allowed or allowable for the GAA.

Abusive transactions. If you dispose of GAA property in an abusive transaction, you must remove it from the GAA. A disposition is an abusive transaction if it is not a nonrecognition transaction (described earlier) or a like-kind exchange or involuntary conversion and a main purpose for the disposition is to get a tax benefit or a result that would not be available without the use of a GAA. Examples of abusive transactions include the following.

 

1. A transaction with a main purpose of shifting income or deductions among taxpayers in a way that would not be possible without choosing to use a GAA to take advantage of differing effective tax rates.

2. A choice to use a GAA with a main purpose of disposing of property from the GAA so that you can use an expiring net operating loss or credit. For example, if you have a net operating loss carryover or a credit carryover, the following transactions will be considered abusive transactions unless there is strong evidence to the contrary.

 

a. A transfer of GAA property to a related person.

b. A transfer of GAA property under an agreement where the property continues to be used, or is available for use, by you.

Figuring gain or loss. You must determine the gain, loss, or other deduction due to an abusive transaction by taking into account the property's adjusted basis. The adjusted basis of the property at the time of the disposition is the result of the following.

 

• The unadjusted depreciable basis of the property, minus

• The depreciation allowed or allowable for the property figured by using the depreciation method, recovery period, and convention that applied to the GAA in which the property was included.

 

If there is a gain, the amount subject to recapture as ordinary income is the smaller of the following:

 

1. The depreciation allowed or allowable for the property, including any expensed cost (such as section 179 deductions) or the special depreciation allowance for the property.

2. The result of the following:

 

a. The original unadjusted depreciable basis of the GAA (plus, for section 1245 property originally included in the GAA, any expensed cost), minus

b. The total gain previously recognized as ordinary income on the disposition of property from the GAA.

Qualifying dispositions. If you dispose of GAA property in a qualifying disposition, you can choose to remove the property from the GAA. A qualifying disposition is one that does not involve all the property, or the last item of property, remaining in a GAA and that is described by any of the following.

 

1. A disposition that is a direct result of fire, storm, shipwreck, other casualty, or theft.

2. A charitable contribution for which a deduction is allowed.

3. A disposition that is a direct result of a cessation, termination, or disposition of a business, manufacturing or other income-producing process, operation, facility, plant, or other unit (other than by transfer to a supplies, scrap, or similar account).

4. A nontaxable transaction other than a nonrecognition transaction (described earlier), a like-kind exchange or involuntary conversion, a technical termination of a partnership, or a transaction that is nontaxable only because it is a disposition from a GAA.

 

If you choose to remove the property from the GAA, figure your gain, loss, or other deduction resulting from the disposition in the manner described earlier under Abusive transactions.

Like-kind exchanges and involuntary conversions. If you dispose of GAA property as a result of a like-kind exchange or involuntary conversion, you must remove from the GAA the property that you transferred. See chapter 1 of Pub. 544 for information on these transactions. Figure your gain, loss, or other deduction resulting from the disposition in the manner described earlier under Abusive transactions.

Example. Sankofa, a calendar-year corporation, maintains one GAA for 12 machines. Each machine costs $15,000 and was placed in service in 2014. Of the 12 machines, nine cost a total of $135,000 and are used in Sankofa's New York plant and three machines cost $45,000 and are used in Sankofa's New Jersey plant. Assume this GAA uses the 200% declining balance depreciation method, a 5-year recovery period, and a half-year convention. Sankofa does not claim the section 179 deduction and the machines do not qualify for a special depreciation allowance. As of January 1, 2016, the depreciation reserve account for the GAA is $93,600.

In May 2016, Sankofa sells its entire manufacturing plant in New Jersey to an unrelated person. The sales proceeds allocated to each of the three machines at the New Jersey plant is $5,000. This transaction is a qualifying disposition, so Sankofa chooses to remove the three machines from the GAA and figure the gain, loss, or other deduction by taking into account their adjusted bases.

For Sankofa's 2016 return, the depreciation allowance for the GAA is figured as follows. As of December 31, 2015, the depreciation allowed or allowable for the three machines at the New Jersey plant is $23,400. As of January 1, 2016, the unadjusted depreciable basis of the GAA is reduced from $180,000 to $135,000 ($180,000 minus the $45,000 unadjusted depreciable bases of the three machines), and the depreciation reserve account is decreased from $93,600 to $70,200 ($93,600 minus $23,400 depreciation allowed or allowable for the three machines as of December 31, 2015). The depreciation allowance for the GAA in 2016 is $25,920 [($135,000 - $70,200) × 40%].

For Sankofa's 2016 return, gain or loss for each of the three machines at the New Jersey plant is determined as follows. The depreciation allowed or allowable in 2016 for each machine is $1,440 [(($15,000 - $7,800) × 40%) ÷ 2]. The adjusted basis of each machine is $5,760 (the adjusted depreciable basis of $7,200 removed from the account less the $1,440 depreciation allowed or allowable in 2016). As a result, the loss recognized in 2016 for each machine is $760 ($5,000 - $5,760). This loss is subject to section 1231 treatment. See chapter 3 of Pub. 544 for information on section 1231 losses.

Disposition of all property in a GAA. If you dispose of all the property, or the last item of property, in a GAA, you can choose to end the GAA. If you make this choice, you figure the gain or loss by comparing the adjusted depreciable basis of the GAA with the amount realized.

If there is a gain, the amount subject to recapture as ordinary income is limited to the result of the following.

 

• The depreciation allowed or allowable for the GAA, including any expensed cost (such as section 179 deductions or the additional depreciation allowed or allowable for the GAA), minus

• The total gain previously recognized as ordinary income on the disposition of property from the GAA.

 

Like-kind exchanges and involuntary conversions. If you dispose of all the property or the last item of property in a GAA as a result of a like-kind exchange or involuntary conversion, the GAA terminates. You must figure the gain or loss in the manner described above under Disposition of all property in a GAA.

Example. Duforcelf, a calendar-year corporation, maintains a GAA for 1,000 calculators that cost a total of $60,000 and were placed in service in 2013. Assume this GAA is depreciated under the 200% declining balance method, has a recovery period of 5 years, and uses a half-year convention. Duforcelf does not claim the section 179 deduction and the calculators do not qualify for a special depreciation allowance. In 2015, Duforcelf sells 200 of the calculators to an unrelated person for $10,000. The $10,000 is recognized as ordinary income.

In March 2016, Duforcelf sells the remaining calculators in the GAA to an unrelated person for $35,000. Duforcelf decides to end the GAA.

On the date of the disposition, the adjusted depreciable basis of the account is $23,040 (unadjusted depreciable basis of $60,000 minus the depreciation allowed or allowable of $36,960). In 2016, Duforcelf recognizes a gain of $11,960. This is the amount realized of $35,000 minus the adjusted depreciable basis of $23,040. The gain subject to recapture as ordinary income is limited to the depreciation allowed or allowable minus the amounts previously recognized as ordinary income ($36,960 - $10,000 = $26,960). Therefore, the entire gain of $11,960 is recaptured as ordinary income.

Electing To Use a GAA

An election to include property in a GAA is made separately by each owner of the property. This means that an election to include property in a GAA must be made by each member of a consolidated group and at the partnership or S corporation level (and not by each partner or shareholder separately).

How to make the election. Make the election by completing line 18 of Form 4562.

When to make the election. You must make the election on a timely filed tax return (including extensions) for the year in which you place in service the property included in the GAA. However, if you timely filed your return for the year without making the election, you still can make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Attach the election to the amended return and write "Filed pursuant to section 301.9100-2" on the election statement.

RECORDS: You must maintain records that identify the property included in each GAA, that establish the unadjusted depreciable basis and depreciation reserve of the GAA, and that reflect the amount realized during the year upon dispositions from each GAA. However, see chapter 2 for the recordkeeping requirements for section 179 property.

Revoking an election. You can revoke an election to use a GAA only in the following situations.

 

• You include in the GAA property that generates foreign source income, both United States and foreign source income, or combined gross income of an FSC, a DISC, or a possessions corporation and its related supplier, and that inclusion results in a substantial distortion of income.

• You remove property from the GAA as described under Terminating GAA Treatment, earlier.

 

When Do You Recapture MACRS Depreciation?

Terms you may need to know (see Glossary):

 

• Disposition

• Nonresidential real property

• Recapture

• Residential rental property

 

When you dispose of property that you depreciated using MACRS, any gain on the disposition generally is recaptured (included in income) as ordinary income up to the amount of the depreciation previously allowed or allowable for the property. Depreciation, for this purpose, includes the following.

 

• Any section 179 deduction claimed on the property.

• Any deduction under section 179B of the Internal Revenue Code for capital costs to comply with Environmental Protection Agency sulfur regulations.

• Any deduction under section 179C of the Internal Revenue Code for certain qualified refinery property placed in service after August 8, 2005, and before January 1, 2014.

• Any deduction under section 179D of the Internal Revenue Code for certain energy efficient commercial building property placed in service after December 31, 2005, and before January 1, 2017.

• Any deduction under section 179E of the Internal Revenue Code for qualified advanced mine safety equipment property placed in service after December 20, 2006, and before January 1, 2017.

• Any deduction under section 190 of the Internal Revenue Code for removal of barriers to the disabled and the elderly.

• Any deduction under section 193 of the Internal Revenue Code for tertiary injectants.

• Any special depreciation allowance previously allowed or allowable for the property (unless you elected not to claim it).

 

There is no recapture for residential rental and nonresidential real property unless that property is qualified property for which you claimed a special depreciation allowance. For more information on depreciation recapture, see Pub. 544.

5. Additional Rules for Listed Property

Introduction

This chapter discusses the deduction limits and other special rules that apply to certain listed property. Listed property includes cars and other property used for transportation, property used for entertainment, and certain computers.

Deductions for listed property (other than certain leased property) are subject to the following special rules and limits.

 

Deduction for employees. If your use of the property is not for your employer's convenience or is not required as a condition of your employment, you cannot deduct depreciation or rent expenses for your use of the property as an employee.

Business-use requirement. If the property is not used predominantly (more than 50%) for qualified business use, you cannot claim the section 179 deduction or a special depreciation allowance. In addition, you must figure any depreciation deduction under the Modified Accelerated Cost Recovery System (MACRS) using the straight line method over the ADS recovery period. You may also have to recapture (include in income) any excess depreciation claimed in previous years. A similar inclusion amount applies to certain leased property.

Passenger automobile limits and rules. Annual limits apply to depreciation deductions (including section 179 deductions and any special depreciation allowance) for certain passenger automobiles. You can continue to deduct depreciation for the unrecovered basis resulting from these limits after the end of the recovery period.

 

This chapter defines listed property and explains the special rules and depreciation deduction limits that apply, including the special inclusion amount rule for leased property. It also discusses the recordkeeping rules for listed property and explains how to report information about the property on your tax return.

Useful Items

You may want to see:

Publication

 

Publication 535 Business Expenses

Publication 587 Business Use of Your Home (Including Use by Daycare Providers)

 

Form (and Instructions)

 

Form 2106 Employee Business Expenses

Form 2106-EZ Unreimbursed Employee Business Expenses

Form 4562 Depreciation and Amortization

Form 4797 Sales of Business Property

 

See chapter 6 for information about getting publications and forms.

What Is Listed Property?

Terms you may need to know (see Glossary):

 

• Capitalized

• Commuting

• Improvement

• Recovery period

• Straight line method

 

Listed property is any of the following.

 

• Passenger automobiles (as defined later).

• Any other property used for transportation, unless it is an excepted vehicle.

• Property generally used for entertainment, recreation, or amusement (including photographic, phonographic, communication, and video-recording equipment).

• Computers and related peripheral equipment, unless used only at a regular business establishment and owned or leased by the person operating the establishment. A regular business establishment includes a portion of a dwelling unit that is used both regularly and exclusively for business as discussed in Pub. 587.

 

Improvements to listed property. An improvement made to listed property that must be capitalized is treated as a new item of depreciable property. The recovery period and method of depreciation that apply to the listed property as a whole also apply to the improvement. For example, if you must depreciate the listed property using the straight line method, you also must depreciate the improvement using the straight line method.

Passenger Automobiles

A passenger automobile is any four-wheeled vehicle made primarily for use on public streets, roads, and highways and rated at 6,000 pounds or less of unloaded gross vehicle weight (6,000 pounds or less of gross vehicle weight for trucks and vans). It includes any part, component, or other item physically attached to the automobile at the time of purchase or usually included in the purchase price of an automobile.

The following vehicles are not considered passenger automobiles for these purposes.

 

• An ambulance, hearse, or combination ambulance-hearse used directly in a trade or business.

• A vehicle used directly in the trade or business of transporting persons or property for pay or hire.

• A truck or van that is a qualified nonpersonal use vehicle.

 

Qualified nonpersonal use vehicles. Qualified nonpersonal use vehicles are vehicles that by their nature are not likely to be used more than a minimal amount for personal purposes. They include the trucks and vans listed as excepted vehicles under Other Property Used for Transportation, next. They also include trucks and vans that have been specially modified so that they are not likely to be used more than a minimal amount for personal purposes, such as by installation of permanent shelving and painting the vehicle to display advertising or the company's name.

For a detailed discussion of passenger automobiles, including leased passenger automobiles, see

Other property used for transportation includes trucks, buses, boats, airplanes, motorcycles, and any other vehicles used to transport persons or goods.

Excepted vehicles. Other property used for transportation does not include the following qualified nonpersonal use vehicles (defined earlier under Passenger Automobiles).

 

• Clearly marked police and fire vehicles.

• Unmarked vehicles used by law enforcement officers if the use is officially authorized.

• Ambulances used as such and hearses used as such.

• Any vehicle with a loaded gross vehicle weight of over 14,000 pounds that is designed to carry cargo.

• Bucket trucks (cherry pickers), cement mixers, dump trucks (including garbage trucks), flatbed trucks, and refrigerated trucks.

• Combines, cranes and derricks, and forklifts.

• Delivery trucks with seating only for the driver, or only for the driver plus a folding jump seat.

• Qualified moving vans.

• Qualified specialized utility repair trucks.

• School buses used in transporting students and employees of schools.

• Other buses with a capacity of at least 20 passengers that are used as passenger buses.

• Tractors and other special purpose farm vehicles.

 

Clearly marked police and fire vehicle. A clearly marked police or fire vehicle is a vehicle that meets all the following requirements.

 

• It is owned or leased by a governmental unit or an agency or instrumentality of a governmental unit.

• It is required to be used for commuting by a police officer or fire fighter who, when not on a regular shift, is on call at all times.

• It is prohibited from being used for personal use (other than commuting) outside the limit of the police officer's arrest powers or the fire fighter's obligation to respond to an emergency.

• It is clearly marked with painted insignia or words that make it readily apparent that it is a police or fire vehicle. A marking on a license plate is not a clear marking for these purposes.

 

Qualified moving van. A qualified moving van is any truck or van used by a professional moving company for moving household or business goods if the following requirements are met.

 

• No personal use of the van is allowed other than for travel to and from a move site or for minor personal use, such as a stop for lunch on the way from one move site to another.

• Personal use for travel to and from a move site happens no more than five times a month on average.

• Personal use is limited to situations in which it is more convenient to the employer, because of the location of the employee's residence in relation to the location of the move site, for the van not to be returned to the employer's business location.

 

Qualified specialized utility repair truck. A truck is a qualified specialized utility repair truck if it is not a van or pickup truck and all the following apply.

 

• The truck was specifically designed for and is used to carry heavy tools, testing equipment, or parts.

• Shelves, racks, or other permanent interior construction has been installed to carry and store the tools, equipment, or parts and would make it unlikely that the truck would be used, other than minimally, for personal purposes.

• The employer requires the employee to drive the truck home in order to be able to respond in emergency situations for purposes of restoring or maintaining electricity, gas, telephone, water, sewer, or steam utility services.

 

Computers and Related Peripheral Equipment

A computer is a programmable, electronically activated device capable of accepting information, applying prescribed processes to the information, and supplying the results of those processes with or without human intervention. It consists of a central processing unit with extensive storage, logic, arithmetic, and control capabilities.

Related peripheral equipment is any auxiliary machine which is designed to be controlled by the central processing unit of a computer.

The following are neither computers nor related peripheral equipment.

 

• Any equipment that is an integral part of other property that is not a computer.

• Typewriters, calculators, adding and accounting machines, copiers, duplicating equipment, and similar equipment.

• Equipment of a kind used primarily for the user's amusement or entertainment, such as video games.

 

Can Employees Claim a Deduction?

If you are an employee, you can claim a depreciation deduction for the use of your listed property (whether owned or rented) in performing services as an employee only if your use is a business use. The use of your property in performing services as an employee is a business use only if both the following requirements are met.

 

• The use is for your employer's convenience.

• The use is required as a condition of your employment.

 

If these requirements are not met, you cannot deduct depreciation (including the section
179 deduction) or rent expenses for your use of the property as an employee.

Employer's convenience. Whether the use of listed property is for your employer's convenience must be determined from all the facts. The use is for your employer's convenience if it is for a substantial business reason of the employer. The use of listed property during your regular working hours to carry on your employer's business generally is for the employer's convenience.

Condition of employment. Whether the use of listed property is a condition of your employment depends on all the facts and circumstances. The use of property must be required for you to perform your duties properly. Your employer does not have to require explicitly that you use the property. However, a mere statement by the employer that the use of the property is a condition of your employment is not sufficient.

Example 1. Virginia Sycamore is employed as a courier with We Deliver, which provides local courier services. She owns and uses a motorcycle to deliver packages to downtown offices. We Deliver explicitly requires all delivery persons to own a car or motorcycle for use in their employment. Virginia's use of the motorcycle is for the convenience of We Deliver and is required as a condition of employment.

Example 2. Bill Nelson is an inspector for Uplift, a construction company with many sites in the local area. He must travel to these sites on a regular basis. Uplift does not furnish an automobile or explicitly require him to use his own automobile. However, it pays him for any costs he incurs in traveling to the various sites. The use of his own automobile or a rental automobile is for the convenience of Uplift and is required as a condition of employment.

Example 3. Assume the same facts as in Example 2, except that Uplift furnishes a car to Bill, who chooses to use his own car and receive payment for using it. The use of his own car is neither for the convenience of Uplift nor required as a condition of employment.

Example 4. Marilyn Lee is a pilot for Y Company, a small charter airline. Y requires pilots to obtain 80 hours of flight time annually in addition to flight time spent with the airline. Pilots usually can obtain these hours by flying with the Air Force Reserve or by flying part-time with another airline. Marilyn owns her own airplane. The use of her airplane to obtain the required flight hours is neither for the convenience of the employer nor required as a condition of employment.

Example 5. David Rule is employed as an engineer with Zip, an engineering contracting firm. He occasionally takes work home at night rather than work late in the office. He owns and uses a home computer which is virtually identical to the office model. His use of the computer is neither for the convenience of his employer nor required as a condition of employment.

What Is the Business-Use Requirement?

Terms you may need to know (see Glossary):

 

• Adjusted basis

• Business/investment use

• Capitalized

• Commuting

• Declining balance method

• Fair market value (FMV)

• Nonresidential real property

• Placed in service

• Recapture

• Recovery period

• Straight line method

 

You can claim the section 179 deduction and a special depreciation allowance for listed property and depreciate listed property using GDS and a declining balance method if the property meets the business-use requirement. To meet this requirement, listed property must be used predominantly (more than 50% of its total use) for qualified business use. If this requirement is not met, the following rules apply.

 

• Property not used predominantly for qualified business use during the year it is placed in service does not qualify for the section 179 deduction.

• Property not used predominantly for qualified business use during the year it is placed in service does not qualify for a special depreciation allowance.

• Any depreciation deduction under MACRS for property not used predominantly for qualified business use during any year must be figured using the straight line method over the ADS recovery period. This rule applies each year of the recovery period.

• Excess depreciation on property previously used predominantly for qualified business use must be recaptured (included in income) in the first year in which it is no longer used predominantly for qualified business use.

• A lessee must add an inclusion amount to income in the first year in which the leased property is not used predominantly for qualified business use.

 

CAUTION: Being required to use the straight line method for an item of listed property not used predominantly for qualified business use is not the same as electing the straight line method. It does not mean that you have to use the straight line method for other property in the same class as the item of listed property.

Exception for leased property. The business-use requirement generally does not apply to any listed property leased or held for leasing by anyone regularly engaged in the business of leasing listed property.

You are considered regularly engaged in the business of leasing listed property only if you enter into contracts for the leasing of listed property with some frequency over a continuous period of time. This determination is made on the basis of the facts and circumstances in each case and takes into account the nature of your business in its entirety. Occasional or incidental leasing activity is insufficient. For example, if you lease only one passenger automobile during a tax year, you are not regularly engaged in the business of leasing automobiles. An employer who allows an employee to use the employer's property for personal purposes and charges the employee for the use is not regularly engaged in the business of leasing the property used by the employee.

How To Allocate Use

To determine whether the business-use requirement is met, you must allocate the use of any item of listed property used for more than one purpose during the year among its various uses.

For passenger automobiles and other means of transportation, allocate the property's use on the basis of mileage. You determine the percentage of qualified business use by dividing the number of miles you drove the vehicle for business purposes during the year by the total number of miles you drove the vehicle for all purposes (including business miles) during the year.

For other listed property, allocate the property's use on the basis of the most appropriate unit of time the property is actually used (rather than merely being available for use). For example, you can determine the percentage of business use of a computer by dividing the number of hours you used the computer for business purposes during the year by the total number of hours you used the computer for all purposes (including business use) during the year.

Entertainment use. Treat the use of listed property for entertainment, recreation, or amusement purposes as a business use only to the extent you can deduct expenses (other than interest and property tax expenses) due to its use as an ordinary and necessary business expense.

Commuting use. The use of an automobile for commuting is not business use, regardless of whether work is performed during the trip. For example, a business telephone call made on a car telephone while commuting to work does not change the character of the trip from commuting to business. This is also true for a business meeting held in a car while commuting to work. Similarly, a business call made on an otherwise personal trip does not change the character of a trip from personal to business. The fact that an automobile is used to display material that advertises the owner's or user's trade or business does not convert an otherwise personal use into business use.

Use of your automobile by another person. If someone else uses your automobile, do not treat that use as business use unless one of the following conditions applies.

 

1. That use is directly connected with your business.

2. You properly report the value of the use as income to the other person and withhold tax on the income where required.

3. You are paid a fair market rent.

 

Treat any payment to you for the use of the automobile as a rent payment for purposes of item (3).

Employee deductions. If you are an employee, do not treat your use of listed property as business use unless it is for your employer's convenience and is required as a condition of your employment. See Can Employees Claim a Deduction, earlier.

Qualified Business Use

Qualified business use of listed property is any use of the property in your trade or business. However, it does not include the following uses.

 

• The leasing of property to any 5% owner or related person (to the extent the property is used by a 5% owner or person related to the owner or lessee of the property).

• The use of property as pay for the services of a 5% owner or related person.

• The use of property as pay for services of any person (other than a 5% owner or related person), unless the value of the use is included in that person's gross income and income tax is withheld on that amount where required.

 

CAUTION: Property does not stop being used predominantly for qualified business use because of a transfer at death.

Exception for leasing or compensatory use of aircraft. Treat the leasing of any aircraft by a 5% owner or related person, or the compensatory use of any aircraft, as a qualified business use if at least 25% of the total use of the aircraft during the year is for a qualified business use.

5% owner. For a business entity that is not a corporation, a 5% owner is any person who owns more than 5% of the capital or profits interest in the business.

For a corporation, a 5% owner is any person who owns, or is considered to own, either of the following.

 

• More than 5% of the outstanding stock of the corporation.

• Stock possessing more than 5% of the total combined voting power of all stock in the corporation.

 

Related persons. For a description of related persons, see Related persons in the discussion on property owned or used in 1986 under What Method Can You Use To Depreciate Your Property in chapter 1. For this purpose, however, treat as related persons only the relationships listed in items (1) through (10) of that discussion and substitute "50%" for "10%" each place it appears.

Examples. The following examples illustrate whether the use of business property is qualified business use.

Example 1. John Maple is the sole proprietor of a plumbing contracting business. John employs his brother, Richard, in the business. As part of Richard's pay, he is allowed to use one of the company automobiles for personal use. The company includes the value of the personal use of the automobile in Richard's gross income and properly withholds tax on it. The use of the automobile is pay for the performance of services by a related person, so it is not a qualified business use.

Example 2. John, in Example 1, allows unrelated employees to use company automobiles for personal purposes. He does not include the value of the personal use of the company automobiles as part of their compensation and he does not withhold tax on the value of the use of the automobiles. This use of company automobiles by employees is not a qualified business use.

Example 3. James Company Inc. owns several automobiles that its employees use for business purposes. The employees also are allowed to take the automobiles home at night. The fair market value of each employee's use of an automobile for any personal purpose, such as commuting to and from work, is reported as income to the employee and James Company withholds tax on it. This use of company automobiles by employees, even for personal purposes, is a qualified business use for the company.

Investment Use

The use of property to produce income in a nonbusiness activity (investment use) is not a qualified business use. However, you can treat the investment use as business use to figure the depreciation deduction for the property in a given year.

Example 1. Sarah Bradley uses a home computer 50% of the time to manage her investments. She also uses the computer 40% of the time in her part-time consumer research business. Sarah's home computer is listed property because it is not used at a regular business establishment. She does not use the computer predominantly for qualified business use. Therefore, she cannot elect a section 179 deduction or claim a special depreciation allowance for the computer. She must depreciate it using the straight line method over the ADS recovery period. Her combined business/investment use for determining her depreciation deduction is 90%.

Example 2. If Sarah uses her computer 30% of the time to manage her investments and 60% of the time in her consumer research business, it is used predominantly for qualified business use. She can elect a section 179 deduction and, if she does not deduct all the computer's cost, she can claim a special depreciation allowance and depreciate the computer using the 200% declining balance method over the GDS recovery period. Her combined business/investment use for determining her depreciation deduction is 90%.

Recapture of Excess Depreciation

If you used listed property more than 50% in a qualified business use in the year you placed it in service, you must recapture (include in income) excess depreciation in the first year you use it 50% or less. You also increase the adjusted basis of your property by the same amount.

Excess depreciation is:

 

1. The depreciation allowable for the property (including any section 179 deduction and special depreciation allowance claimed) for years before the first year you do not use the property predominantly for qualified business use, minus

2. The depreciation that would have been allowable for those years if you had not used the property predominantly for qualified business use in the year you placed it in service.

 

To determine the amount in (2) above, you must refigure the depreciation using the straight line method and the ADS recovery period.

Example. In June 2012, Ellen Rye purchased and placed in service a pickup truck that cost $18,000. She used it only for qualified business use for 2012 through 2015. Ellen claimed a section 179 deduction of $10,000 based on the purchase of the truck. She began depreciating it using the 200% DB method over a 5-year GDS recovery period. The pickup truck's gross vehicle weight was over 6,000 pounds, so it was not subject to the passenger automobile limits discussed later under Do the Passenger Automobile Limits Apply. During 2016, she used the truck 50% for business and 50% for personal purposes. She includes $4,018 excess depreciation in her gross income for 2016. The excess depreciation is determined as follows.

 Total section 179 deduction ($10,000) and

 

   depreciation claimed ($6,618) for 2012 through

 

   2015. (Depreciation is from Table A-1.)                  $16,618

 

 Minus: Depreciation allowable (Table

 

   A-8):

 

   2012 -- 10% of $18,000                           $1,800

 

   2013 -- 20% of $18,000                            3,600

 

   2014 -- 20% of $18,000                            3,600

 

   2015 -- 20% of $18,000                            3,600   12,600

 

                                                    ------  -------

 

 Excess depreciation                                         $4,018

 

                                                            =======

 

 

If Ellen's use of the truck does not change to 50% for business and 50% for personal purposes until 2018, there will be no excess depreciation. The total depreciation allowable using Table A-8 through 2018 will be $18,000, which equals the total of the section 179 deduction and depreciation she will have claimed.

Where to figure and report recapture. Use Form 4797, Part IV, to figure the recapture amount. Report the recapture amount as other income on the same form or schedule on which you took the depreciation deduction. For example, report the recapture amount as other income on Form 2106, report the recapture amount as other income on Form 1040, line 21.

Lessee's Inclusion Amount

If you use leased listed property other than a passenger automobile for business/investment use, you must include an amount in your income in the first year your qualified business-use percentage is 50% or less. Your qualified business-use percentage is the part of the property's total use that is qualified business use (defined earlier). For the inclusion amount rules for a leased passenger automobile, see Leasing a Car in chapter 4 of

 

1. The fair market value of the property, multiplied by

2. The business/investment use for the first tax year the qualified business-use percentage is 50% or less, multiplied by

3. The applicable percentage from Table A-19 in Appendix A.

 

The fair market value of the property is the value on the first day of the lease term. If the capitalized cost of an item of listed property is specified in the lease agreement, you must treat that amount as the fair market value.

Amount B. Amount B is:

 

1. The fair market value of the property, multiplied by

2. The average of the business/investment use for all tax years the property was leased that precede the first tax year the qualified business-use percentage is 50% or less, multiplied by

3. The applicable percentage from Table A-20 in Appendix A.

 

Maximum inclusion amount. The inclusion amount cannot be more than the sum of the deductible amounts of rent for the tax year in which the lessee must include the amount in gross income.

Inclusion amount worksheet. The following worksheet is provided to help you figure the inclusion amount for leased listed property.

Inclusion Amount Worksheet for Leased Listed Property

 Keep for Your Records

 

 -------------------------------------------------------

 

  1. Fair market value                            ______

 

  2. Business/investment use for first year

 

     business use is 50% or less                  ______

 

  3. Multiply line 1 by line 2                    ______

 

  4. Rate (%) from Table A-19                     ______

 

  5. Multiply line 3 by line 4. This is Amount

 

     A                                            ______

 

  6. Fair market value                            ______

 

  7. Average business/investment use for

 

     years property leased before the first year

 

     business use is 50% or less                  ______

 

  8. Multiply line 6 by line 7                    ______

 

  9. Rate (%) from Table A-20                     ______

 

 10. Multiply line 8 by line 9. This is Amount

 

     B.                                           ______

 

 11. Add line 5 and line 10. This is your

 

     inclusion amount. Enter here and as other

 

     income on the form or schedule on which

 

     you originally took the deduction (for

 

     example, F (Form 1040),

 

     Form 1040, Form 1120, etc.)                  ______

 

 -------------------------------------------------------

 

 

Example. On February 1, 2014, Larry House, a calendar year taxpayer, leased and placed in service a computer with a fair market value of $3,000. The lease is for a period of 5 years. Larry does not use the computer at a regular business establishment, so it is listed property. His business use of the property (all of which is qualified business use) is 80% in 2014, 60% in 2015, and 40% in 2016. He must add an inclusion amount to gross income for 2016, the first tax year his qualified business-use percentage is 50% or less. The computer has a 5-year recovery period under both GDS and ADS. 2016 is the third tax year of the lease, so the applicable percentage from Table A-19 is -19.8%. The applicable percentage from Table A-20 is 22%. Larry's deductible rent for the computer for 2016 is $800.

Larry uses the Inclusion amount worksheet to figure the amount he must include in income for 2016. His inclusion amount is $224, which is the sum of -$238 (Amount A) and $462 (Amount B).

Inclusion Amount Worksheet for Leased Listed Property

 Keep for Your Records

 

 -------------------------------------------------------

 

  1. Fair market value                          $3,000

 

  2. Business/investment use for first year

 

     business use is 50% or less                    40%

 

  3. Multiply line 1 by line 2                   1,200

 

  4. Rate (%) from Table A-19                    -19.8%

 

  5. Multiply line 3 by line 4. This is Amount

 

     A.                                           -238

 

  6. Fair market value                           3,000

 

  7. Average business/investment use for

 

     years property leased before the first

 

     year business use is 50% or less               70%

 

  8. Multiply line 6 by line 7                   2,100

 

  9. Rate (%) from Table A-20                     22.0%

 

 10. Multiply line 8 by line 9. This is Amount

 

     B.                                            462

 

 11. Add line 5 and line 10. This is your

 

     inclusion amount. Enter here and as

 

     other income on the form or schedule

 

     on which you originally took the

 

     deduction (for example, Schedule C or

 

     Form 1040, Form 1120,

 

     etc.)                                        $224

 

 -------------------------------------------------------

 

 

Lease beginning in the last 9 months of your tax year. The inclusion amount is subject to a special rule if all the following apply.

 

• The lease term begins within 9 months before the close of your tax year.

• You do not use the property predominantly (more than 50%) for qualified business use during that part of the tax year.

• The lease term continues into your next tax year.

 

Under this special rule, add the inclusion amount to income in the next tax year. Figure the inclusion amount by taking into account the average of the business/investment use for both tax years (line 2 of the Inclusion Amount Worksheet for Leased Listed Property) and the applicable percentage for the tax year the lease term begins. Skip lines 6 through 9 of the worksheet and enter zero on line 10.

Example 1. On August 1, 2015, Julie Rule, a calendar year taxpayer, leased and placed in service an item of listed property. The property is 5-year property with a fair market value of $10,000. Her property has a recovery period of 5 years under ADS. The lease is for 5 years. Her business use of the property was 50% in 2015 and 90% in 2016. She paid rent of $3,600 for 2015, of which $3,240 is deductible. She must include $147 in income in 2016. The $147 is the sum of Amount A and Amount B. Amount A is $147 ($10,000 × 70% × 2.1%), the product of the fair market value, the average business use for 2015 and 2016, and the applicable percentage for year one from Table A-19. Amount B is zero.

Lease for less than one year. A special rule for the inclusion amount applies if the lease term is less than one year and you do not use the property predominantly (more than 50%) for qualified business use. The amount included in income is the inclusion amount (figured as described in the preceding discussions) multiplied by a fraction. The numerator of the fraction is the number of days in the lease term and the denominator is 365 (or 366 for leap years).

The lease term for listed property other than residential rental or nonresidential real property includes options to renew. If you have two or more successive leases that are part of the same transaction (or a series of related transactions) for the same or substantially similar property, treat them as one lease.

Example 2. On October 1, 2015, John Joyce, a calendar year taxpayer, leased and placed in service an item of listed property that is 3-year property. This property had a fair market value of $15,000 and a recovery period of 5 years under ADS. The lease term was 6 months (ending on March 31, 2016), during which he used the property 45% in business. He must include $71 in income in 2016. The $71 is the sum of Amount A and Amount B. Amount A is $71 ($15,000 × 45% × 2.1% × 183/366), the product of the fair market value, the average business use for both years, and the applicable percentage for year one from Table A-19, prorated for the length of the lease. Amount B is zero.

Where to report inclusion amount. Report the inclusion amount figured as described in the preceding discussions as other income on the same form or schedule on which you took the deduction for your rental costs. For example, report the inclusion amount as other income on Schedule C (Form 1040) if you took the deduction on Schedule C. If you took the deduction for rental costs on Form 2106, report the inclusion amount as other income on Form 1040, line 21.

Do the Passenger Automobile Limits Apply?

Terms you may need to know (see Glossary):

 

• Basis

• Convention

• Placed in service

• Recovery period

 

The depreciation deduction, including the section
179 deduction and special depreciation allowance, you can claim for a passenger automobile (defined earlier) each year is limited.

This section describes the maximum depreciation deduction amounts for 2016 and explains how to deduct, after the recovery period, the unrecovered basis of your property that results from applying the passenger automobile limit.

Exception for leased cars. The passenger automobile limits generally do not apply to passenger automobiles leased or held for leasing by anyone regularly engaged in the business of leasing passenger automobiles. For information on when you are considered regularly engaged in the business of leasing listed property, including passenger automobiles, see Exception for leased property, earlier, under What Is the Business-Use Requirement.

Maximum Depreciation Deduction

The passenger automobile limits are the maximum depreciation amounts you can deduct for a passenger automobile. They are based on the date you placed the automobile in service.

Passenger Automobiles

The maximum deduction amounts for most passenger automobiles are shown in the following table.

Maximum Depreciation Deduction for Passenger Automobiles

    Date                                   4th &

 

   Placed        1st       2nd      3rd    Later

 

 In Service     Year      Year     Year    Years

 

   2016       $11,1601   $5,100   $3,050   $1,875

 

   2015        11,1602    5,100    3,050    1,875

 

   2014        11,1603    5,100    3,050    1,875

 

   2013        11,1603    5,100    3,050    1,875

 

   2012        11,1603    5,100    3,050    1,875

 

   2011        11,0604    4,900    2,950    1,775

 

   2010        11,0604    4,900    2,950    1,775

 

   2009        10,9605    4,800    2,850    1,775

 

   2008        10,9605    4,800    2,850    1,775

 

   2007         3,060     4,900    2,850    1,775

 

   2006         2,960     4,800    2,850    1,775

 

   2005         2,960     4,700    2,850    1,675

 

 1 if you elected not to claim any special

 

 depreciation allowance or the vehicle is not

 

 qualified property, the maximum deduction is

 

 $3,160.

 

 2 If you elected not to claim any special

 

 depreciation allowance or the vehicle is not

 

 qualified property, the maximum deduction is

 

 $3,160. Also, if you placed in service the

 

 vehicle in a tax year beginning in 2015 and

 

 ending in 2016, and you elected to accelerate

 

 certain credits in lieu of the special

 

 depreciation for that tax year, the maximum

 

 deduction is $3,160.

 

 3 If you elected not to claim any special

 

 depreciation allowance or the vehicle is not

 

 qualified property, the maximum deduction is

 

 $3,160.

 

 4 If you elected not to claim any special

 

 depreciation allowance or the vehicle is not

 

 qualified property, the maximum deduction is

 

 $3,060.

 

 5 If you elected not to claim any special

 

 depreciation allowance for the vehicle or the

 

 vehicle is not qualified property, the maximum

 

 deduction is $2,960.

 

 ================================================

 

 

CAUTION: If your business/investment use of the automobile is less than 100%, you must reduce the maximum deduction amount by multiplying the maximum amount by the percentage of business/investment use determined on an annual basis during the tax year.

CAUTION: If you have a short tax year, you must reduce the maximum deduction amount by multiplying the maximum amount by a fraction. The numerator of the fraction is the number of months and partial months in the short tax year and the denominator is 12.

Example. On April 15, 2016, Virginia Hart bought and placed in service a new car for $14,500. She used the car only in her business. She files her tax return based on the calendar year. She does not elect a section 179 deduction and elected not to claim any special depreciation allowance for the car. Under MACRS, a car is 5-year property. Since she placed her car in service on April 15 and used it only for business, she uses the percentages in Table A-1 to figure her MACRS depreciation on the car. Virginia multiplies the $14,500 unadjusted basis of her car by 0.20 to get her MACRS depreciation of $2,900 for 2016. This $2,900 is below the maximum depreciation deduction of $3,160 for passenger automobiles placed in service in 2016. She can deduct the full $2,900.

Electric Vehicles

The maximum depreciation deductions for passenger automobiles that are produced to run primarily on electricity are higher than those for other automobiles. The maximum deduction amounts for electric vehicles placed in service after August 5, 1997, and before January 1, 2007, are shown in the following table. Owners of electric vehicles placed in service after December 31, 2006, should use the table of maximum deduction amounts in the previous section titled Passenger Automobiles for electric vehicles classified as passenger automobiles or use the table of maximum deduction amounts for trucks and vans, later, for electric vehicles classified as trucks and vans.

Maximum Depreciation Deduction for Electric Vehicles

    Date                                   4th &

 

   Placed      1st        2nd     3rd      Later

 

 In Service    Year      Year    Year      Years

 

     2006     $8,980   $14,400  $8,650    $5,225

 

     2005      8,880    14,200   8,450     5,125

 

     2004     31,8301   14,300   8,550     5,125

 

 5/06/2003-   32,0302   14,600   8,750     5,225

 

 12/31/2003

 

 1/01/2003-   22,8803   14,600   8,750     5,225

 

 5/05/2003

 

 1 If you elected not to claim any special

 

 depreciation allowance for the vehicle or the

 

 vehicle is not qualified property, or the

 

 vehicle is qualified Liberty Zone property,

 

 the maximum deduction is $8,880.

 

 2 If you acquired the vehicle before 5/06/03,

 

 the maximum deduction is $22,880. If you

 

 elected not to claim any special depreciation

 

 allowance for the vehicle, the vehicle is not

 

 qualified property, or the vehicle is

 

 qualified Liberty Zone property, the maximum

 

 deduction is $9,080.

 

 3 If you elected not to claim any special

 

 depreciation allowance for the vehicle, the

 

 vehicle is not qualified property, or the

 

 vehicle is qualified Liberty Zone property,

 

 the maximum deduction is $9,080.

 

 ===============================================

 

 

Trucks and Vans

The maximum depreciation deductions for trucks and vans placed in service after 2002 are higher than those for other passenger automobiles. The maximum deduction amounts for trucks and vans are shown in the following table.

Maximum Depreciation Deduction For Trucks and Vans

    Date                                    4th &

 

   Placed        1st       2nd      3rd     Later

 

 In Service     Year      Year     Year     Years

 

   2016       $11,5601   $5,700   $3,350   $2,075

 

   2015        11,4602    5,600    3,350    1,975

 

   2014        11,4603    5,500    3,350    1,975

 

   2013        11,3604    5,400    3,250    1,975

 

   2012        11,3604    5,300    3,150    1,875

 

   2011        11,2605    5,200    3,150    1,875

 

   2010        11,1606    5,100    3,050    1,875

 

   2009        11,0607    4,900    2,950    1,775

 

   2008        11,1608    5,100    3,050    1,875

 

   2007         3,260     5,200    3,050    1,875

 

   2006         3,260     5,200    3,150    1,875

 

   2005         3,260     5,200    3,150    1,875

 

 1 If you elected not to claim any special

 

 depreciation allowance or the vehicle is not

 

 qualified property, the maximum deduction is

 

 $3,560.

 

 2 If you elected not to claim any special

 

 depreciation allowance or the vehicle is not

 

 qualified property, the maximum deduction is

 

 $3,460. Also, if you placed in service the

 

 vehicle in a tax year beginning in 2015 and

 

 ending in 2016, and you elected to accelerate

 

 certain credits in lieu of the special

 

 depreciation for that tax year, the maximum

 

 deduction is $3,460.

 

 3 If you elected not to claim any special

 

 depreciation allowance or the vehicle is not

 

 qualified property, the maximum deduction is

 

 $3,460.

 

 4 If you elected not to claim any special

 

 depreciation allowance or the vehicle is not

 

 qualified property, the maximum deduction is

 

 $3,360.

 

 5 If you elected not to claim any special

 

 depreciation allowance or the vehicle is not

 

 qualified property, the maximum deduction is

 

 $3,260.

 

 6 If you elected not to claim any special

 

 depreciation allowance or the vehicle is not

 

 qualified property, the maximum deduction is

 

 $3,160.

 

 7 If you elect not to claim any special

 

 depreciation allowance for the vehicle or the

 

 vehicle is not qualified property, the maximum

 

 deduction is $3,060.

 

 8 If you elected not to claim any special

 

 depreciation allowance for the vehicle or the

 

 vehicle is not qualified property, the maximum

 

 deduction is $3,160.

 

 ================================================

 

 

Depreciation Worksheet for Passenger Automobiles

You can use the following worksheet to figure your depreciation deduction using the percentage tables. Then use the information from this worksheet to prepare Form 4562.

Depreciation Worksheet for Passenger Automobiles

 Keep for Your Records

 

 --------------------------------------------------------

 

                        Part I

 

  1. MACRS system (GDS or

 

     ADS)                              __________________

 

  2. Property class                    __________________

 

  3. Date placed in service            __________________

 

  4. Recovery period                   __________________

 

  5. Method and convention             __________________

 

  6. Depreciation rate (from

 

     tables)                           __________________

 

  7. Maximum depreciation

 

     deduction for this year from the

 

     appropriate table                 ______

 

  8. Business/investment-use

 

     percentage                        ______

 

  9. Multiply line 7 by line 8. This is

 

     your adjusted maximum

 

     depreciation deduction                        ______

 

 10. Section 179 deduction claimed

 

     this year (not more than line 9).

 

     Enter -0- if this is not the year

 

     you placed the car in

 

     service                                       ______

 

 --------------------------------------------------------

 

     Note.

 

     1) If line 10 is equal to line 9, stop here. Your

 

     combined section 179 and depreciation

 

     deduction (including your special depreciation

 

     allowance) is limited to the amount on line 9.

 

     2) If line 10 is less than line 9, complete Part II.

 

 --------------------------------------------------------

 

   Part II

 

 11. Subtract line 10 from line 9.

 

     This is the limit on the amount

 

     you can deduct for

 

     depreciation (including any

 

     special depreciation

 

     allowance)                                    ______

 

 12. Cost or other basis (reduced

 

     by any alternative motor

 

     vehicle credit1 or credit for

 

     electric vehicles2)               ______

 

 13. Multiply line 12 by line 8. This

 

     is your business/investment

 

     cost                              ______

 

 14. Section 179 deduction claimed

 

     in the year you placed the car

 

     in service                        ______

 

 15. Subtract line 14 from line 13.

 

     This is your tentative basis for

 

     depreciation                      ______

 

 16. Multiply line 15 by .50 if the

 

     50% special depreciation

 

     allowance applies. This is your

 

     special depreciation

 

     allowance. Enter -0- if this is

 

     not the year you placed the car

 

     in service, the car is not

 

     qualified property, or you

 

     elected not to claim a special

 

     depreciation allowance                        ______

 

 Note

 

 1) If line 16 is equal to line 11, stop here. Your

 

 depreciation deduction (including your special

 

 depreciation allowance) is limited to the amount on

 

 line 11.

 

 2) If line 16 is less than line 11, complete Part III.

 

 --------------------------------------------------------

 

   Part III

 

 17. Subtract line 16 from 11. This

 

     is the limit on the amount you

 

     can deduct for MACRS

 

     depreciation                      ______

 

 18. Subtract line 16 from line 15.

 

     This is your basis for

 

     depreciation.                     ______

 

 19. Multiply line 18 by line 6. This

 

     is your tentative MACRS

 

     depreciation deduction.                       ______

 

 20. Enter the lesser of line 17 or

 

     line 19. This is your MACRS

 

     depreciation deduction.

 

                                                   ======

 

 1 When figuring the amount to enter on line 12, do not

 

 reduce your cost or other basis by any section 179

 

 deduction you claimed for your car.

 

 2 Reduce the basis by the lesser of $4,000 or 10% of the

 

 cost of the vehicle even if the credit is less than that

 

 amount.

 

 ========================================================

 

 

 Deductions After the Recovery Period

 

 

If the depreciation deductions for your automobile are reduced under the passenger automobile limits, you will have unrecovered basis in your automobile at the end of the recovery period. If you continue to use the automobile for business, you can deduct that unrecovered basis after the recovery period ends. You can claim a depreciation deduction in each succeeding tax year until you recover your full basis in the car. The maximum amount you can deduct each year is determined by the date you placed the car in service and your business/investment-use percentage. See Maximum Depreciation Deduction, earlier.

Unrecovered basis is the cost or other basis of the passenger automobile reduced by any clean-fuel vehicle deduction, electric vehicle credit, depreciation, and section 179 deductions that would have been allowable if you had used the car 100% for business and investment use and the passenger automobile limits had not applied.

CAUTION: You cannot claim a depreciation deduction for listed property other than passenger automobiles after the recovery period ends. There is no unrecovered basis at the end of the recovery period because you are considered to have used this property 100% for business and investment purposes during all of the recovery period.

Example. In May 2010, you bought and placed in service a car costing $31,500. The car was 5-year property under GDS (MACRS). You did not elect a section 179 deduction and elected not to claim any special depreciation allowance for the car. You used the car exclusively for business during the recovery period (2010 through 2015). You figured your depreciation as shown below.

 Year     Percentage    Amount     Limit    Allowed

 

 2010       20.0%       $6,300    $3,060     $3,060

 

 2011       32.0        10,080     4,900      4,900

 

 2012       19.2         6,048     2,950      2,950

 

 2013       11.52        3,629     1,775      1,775

 

 2014       11.52        3,629     1,775      1,775

 

 2015        5.76        1,814     1,775      1,775

 

                                            -------

 

   Total                                    $16,235

 

                                            =======

 

 

At the end of 2015, you had an unrecovered basis of $15,265 ($31,500 - $16,235). If in 2016 and later years you continue to use the car 100% for business, you can deduct each year the lesser of $1,775 or your remaining unrecovered basis.

If your business use of the car had been less than 100% during any year, your depreciation deduction would have been less than the maximum amount allowable for that year. However, in figuring your unrecovered basis in the car, you would still reduce your basis by the maximum amount allowable as if the business use had been 100%. For example, if you had used your car 60% for business instead of 100%, your allowable depreciation deductions would have been $9,159 ($15,265 × 60%), but you still would have to reduce your basis by $15,265 to determine your unrecovered basis.

Deductions For Passenger Automobiles Acquired in a Trade-in

If you acquire a passenger automobile in a trade-in, depreciate the carryover basis separately as if the trade-in did not occur. Depreciate the part of the new automobile's basis that exceeds its carryover basis (excess basis) as if it were newly placed in service property. This excess basis is the additional cash paid for the new automobile in the trade-in.

The depreciation figured for the two components of the basis (carryover basis and excess basis) is subject to a single passenger automobile limit. Special rules apply in determining the passenger automobile limits. These rules and examples are discussed in section 1.168(i)-6(d)(3) of the regulations.

Instead of figuring depreciation for the carryover basis and the excess basis separately, you can elect to treat the old automobile as disposed of and both of the basis components for the new automobile as if placed in service at the time of the trade-in. For more information, including how to make this election, see Election out under Property Acquired in a Like-Kind Exchange or Involuntary Conversion in chapter 4 and sections 1.168(i)-6(i) and 1.168(i)-6(j) of the regulations.

What Records Must Be Kept?

Terms you may need to know (see Glossary):

 

• Business/investment use

• Circumstantial evidence

• Documentary evidence

 

You cannot take any depreciation or section 179 deduction for the use of listed property unless you can prove your business/investment use with adequate records or with sufficient evidence to support your own statements. For listed property, you must keep records for as long as any recapture can still occur. Recapture can occur in any tax year of the recovery period.

Adequate Records

RECORDS: To meet the adequate records requirement, you must maintain an account book, diary, log, statement of expense, trip sheet, or similar record or other documentary evidence that, together with the receipt, is sufficient to establish each element of an expenditure or use. You do not have to record information in an account book, diary, or similar record if the information is already shown on the receipt. However, your records should back up your receipts in an orderly manner.

Elements of expenditure or use. Your records or other documentary evidence must support all the following.

 

• The amount of each separate expenditure, such as the cost of acquiring the item, maintenance and repair costs, capital improvement costs, lease payments, and any other expenses.

• The amount of each business and investment use (based on an appropriate measure, such as mileage for vehicles and time for other listed property), and the total use of the property for the tax year.

• The date of the expenditure or use.

• The business or investment purpose for the expenditure or use.

 

Written documents of your expenditure or use are generally better evidence than oral statements alone. You do not have to keep a daily log. However, some type of record containing the elements of an expenditure or the business or investment use of listed property made at or near the time of the expenditure or use and backed up by other documents is preferable to a statement you prepare later.

Timeliness. You must record the elements of an expenditure or use at the time you have full knowledge of the elements. An expense account statement made from an account book, diary, or similar record prepared or maintained at or near the time of the expenditure or use generally is considered a timely record if, in the regular course of business:

 

• The statement is given by an employee to the employer, or

• The statement is given by an independent contractor to the client or customer.

 

For example, a log maintained on a weekly basis, that accounts for use during the week, will be considered a record made at or near the time of use.

Business purpose supported. Generally, an adequate record of business purpose must be in the form of a written statement. However, the amount of detail necessary to establish a business purpose depends on the facts and circumstances of each case. A written explanation of the business purpose will not be required if the purpose can be determined from the surrounding facts and circumstances. For example, a salesperson visiting customers on an established sales route will not normally need a written explanation of the business purpose of his or her travel.

Business use supported. An adequate record contains enough information on each element of every business or investment use. The amount of detail required to support the use depends on the facts and circumstances. For example, a taxpayer who uses a truck for both business and personal purposes and whose only business use of the truck is to make customer deliveries on an established route can satisfy the requirement by recording the length of the route, including the total number of miles driven during the tax year and the date of each trip at or near the time of the trips.

Although you generally must prepare an adequate written record, you can prepare a record of the business use of listed property in a computer memory device that uses a logging program.

Separate or combined expenditures or uses. Each use by you normally is considered a separate use. However, you can combine repeated uses as a single item.

Record each expenditure as a separate item. Do not combine it with other expenditures. If you choose, however, you can combine amounts you spent for the use of listed property during a tax year, such as for gasoline or automobile repairs. If you combine these expenses, you do not need to support the business purpose of each expense. Instead, you can divide the expenses based on the total business use of the listed property.

You can account for uses that can be considered part of a single use, such as a round trip or uninterrupted business use, by a single record. For example, you can account for the use of a truck to make deliveries at several locations that begin and end at the business premises and can include a stop at the business in between deliveries by a single record of miles driven. You can account for the use of a passenger automobile by a salesperson for a business trip away from home over a period of time by a single record of miles traveled. Minimal personal use (such as a stop for lunch between two business stops) is not an interruption of business use.

Confidential information. If any of the information on the elements of an expenditure or use is confidential, you do not need to include it in the account book or similar record if you record it at or near the time of the expenditure or use. You must keep it elsewhere and make it available as support to the IRS director for your area on request.

Substantial compliance. If you have not fully supported a particular element of an expenditure or use, but have complied with the adequate records requirement for the expenditure or use to the satisfaction of the IRS director for your area, you can establish this element by any evidence the IRS director for your area deems adequate.

If you fail to establish to the satisfaction of the IRS director for your area that you have substantially complied with the adequate records requirement for an element of an expenditure or use, you must establish the element as follows.

 

• By your own oral or written statement containing detailed information as to the element.

• By other evidence sufficient to establish the element.

 

If the element is the cost or amount, time, place, or date of an expenditure or use, its supporting evidence must be direct evidence, such as oral testimony by witnesses or a written statement setting forth detailed information about the element or the documentary evidence. If the element is the business purpose of an expenditure, its supporting evidence can be circumstantial evidence.

Sampling. You can maintain an adequate record for part of a tax year and use that record to support your business and investment use of listed property for the entire tax year if it can be shown by other evidence that the periods for which you maintain an adequate record are representative of the use throughout the year.

Example 1. Denise Williams, a sole proprietor and calendar year taxpayer, operates an interior decorating business out of her home. She uses her automobile for local business visits to the homes or offices of clients, for meetings with suppliers and subcontractors, and to pick up and deliver items to clients. There is no other business use of the automobile, but she and family members also use it for personal purposes. She maintains adequate records for the first 3 months of the year showing that 75% of the automobile use was for business. Subcontractor invoices and paid bills show that her business continued at approximately the same rate for the rest of the year. If there is no change in circumstances, such as the purchase of a second car for exclusive use in her business, the determination that her combined business/investment use of the automobile for the tax year is 75% rests on sufficient supporting evidence.

Example 2. Assume the same facts as in Example 1, except that Denise maintains adequate records during the first week of every month showing that 75% of her use of the automobile is for business. Her business invoices show that her business continued at the same rate during the later weeks of each month so that her weekly records are representative of the automobile's business use throughout the month. The determination that her business/investment use of the automobile for the tax year is 75% rests on sufficient supporting evidence.

Example 3. Bill Baker, a sole proprietor and calendar year taxpayer, is a salesman in a large metropolitan area for a company that manufactures household products. For the first 3 weeks of each month, he occasionally uses his own automobile for business travel within the metropolitan area. During these weeks, his business use of the automobile does not follow a consistent pattern. During the fourth week of each month, he delivers all business orders taken during the previous month. The business use of his automobile, as supported by adequate records, is 70% of its total use during that fourth week. The determination based on the record maintained during the fourth week of the month that his business/investment use of the automobile for the tax year is 70% does not rest on sufficient supporting evidence because his use during that week is not representative of use during other periods.

Loss of records. When you establish that failure to produce adequate records is due to loss of the records through circumstances beyond your control, such as through fire, flood, earthquake, or other casualty, you have the right to support a deduction by reasonable reconstruction of your expenditures and use.

How Is Listed Property Information Reported?

You must provide the information about your listed property requested in Part V of Form 4562, Section A, if you claim either of the following deductions.

 

• Any deduction for a vehicle.

• A depreciation deduction for any other listed property.

 

If you claim any deduction for a vehicle, you also must provide the information requested in Section B. If you provide the vehicle for your employee's use, the employee must give you this information. If you provide any vehicle for use by an employee, you must first answer the questions in Section C to see if you meet an exception to completing Section B for that vehicle.

Vehicles used by your employees. You do not have to complete Section B, Part V, for vehicles used by your employees who are not more-than-5% owners or related persons if you meet at least one of the following requirements.

 

1. You maintain a written policy statement that prohibits one of the following uses of the vehicles.

 

a. All personal use including commuting.

b. Personal use, other than commuting, by employees who are not officers, directors, or 1%-or-more owners.

 

2. You treat all use of the vehicles by your employees as personal use.

3. You provide more than five vehicles for use by your employees, and you keep in your records the information on their use given to you by the employees.

4. For demonstrator automobiles provided to full-time salespersons, you maintain a written policy statement that limits the total mileage outside the salesperson's normal working hours and prohibits use of the automobile by anyone else, for vacation trips, or to store personal possessions.

 

Exceptions. If you file Schedule C-EZ (Form 1040), and you are not required to file Form 4562, report information about listed property on that form and not on Form 4562. Also, if you file Schedule C (Form 1040) and are claiming the standard mileage rate or actual vehicle expenses (except depreciation) and you are not required to file Form 4562 for any other reason, report vehicle information in Part IV of Schedule C and not on Form 4562.

6. How To Get Tax Help

If you have questions about a tax issue, need help preparing your tax return, or want to download free publications, forms, or instructions, go to IRS.gov and find resources that can help you right away.

Preparing and filing your tax return. Find free options to prepare and file your return on IRS.gov or in your local community if you qualify.

The Volunteer Income Tax Assistance (VITA) program offers free tax help to people who generally make $54,000 or less, persons with disabilities, the elderly, and limited-English-speaking taxpayers who need help preparing their own tax returns. The Tax Counseling for the Elderly (TCE) program offers free tax help for all taxpayers, particularly those who are 60 years of age and older. TCE volunteers specialize in answering questions about pensions and retirement-related issues unique to seniors.

You can go to IRS.gov and click on the Filing tab to see your options for preparing and filing your return which include the following.

 

Free File. Go to IRS.gov/freefile. See if you qualify to use brand-name software to prepare and e-file your federal tax return for free.

VITA. Go to IRS.gov/vita, download the free IRS2Go app, or call 1-800-906-9887 to find the nearest VITA location for free tax preparation.

TCE. Go to IRS.gov/tce, download the free IRS2Go app, or call 1-888-227-7669 to find the nearest TCE location for free tax preparation.

 

Getting answers to your tax law questions. On IRS.gov get answers to your tax questions anytime, anywhere.

 

• Go to IRS.gov/help or IRS.gov/letushelp pages for a variety of tools that will help you get answers to some of the most common tax questions.

• Go to IRS.gov/ita for the Interactive Tax Assistant, a tool that will ask you questions on a number of tax law topics and provide answers. You can print the entire interview and the final response for your records.

• Go to IRS.gov/pub17 to get Pub. 17, Your Federal Income Tax for Individuals, which features details on tax-saving opportunities, 2016 tax changes, and thousands of interactive links to help you find answers to your questions. View it online in HTML or as a PDF or, better yet, download it to your mobile device to enjoy eBook features.

• You may also be able to access tax law information in your electronic filing software.

 

Getting tax forms and publications. Go to IRS.gov/forms to view, download, or print all of the forms and publications you may need. You can also download and view popular tax publications and instructions (including the 1040 instructions) on mobile devices as an eBook at no charge. Or, you can go to IRS.gov/orderforms to place an order and have forms mailed to you within 10 business days.

Using direct deposit. The fastest way to receive a tax refund is to combine direct deposit and IRS e-file. Direct deposit securely and electronically transfers your refund directly into your financial account. Eight in 10 taxpayers use direct deposit to receive their refund. IRS issues more than 90% of refunds in less than 21 days.

Delayed refund for returns claiming certain credits. Due to changes in the law, the IRS can't issue refunds before February 15, 2017, for returns that claim the earned income credit (EIC) or the additional child tax credit (ACTC). This applies to the entire refund, not just the portion associated with these credits.

Getting a transcript or copy of a return. The quickest way to get a copy of your tax transcript is to go to IRS.gov/transcripts. Click on either "Get Transcript Online" or "Get Transcript by Mail" to order a copy of your transcript. If you prefer, you can:

 

• Order your transcript by calling 1-800-908-9946.

• Mail Form 4506-T or Form 4506T-EZ (both available on IRS.gov).

 

Using online tools to help prepare your return. Go to IRS.gov/tools for the following.

 

• The Earned Income Tax Credit Assistant (IRS.gov/eic) determines if you are eligible for the EIC.

• The Online EIN Application (IRS.gov/ein) helps you get an employer identification number.

• The IRS Withholding Calculator (IRS.gov/w4app) estimates the amount you should have withheld from your paycheck for federal income tax purposes.

• The First Time Homebuyer Credit Account Look-up (IRS.gov/homebuyer) tool provides information on your repayments and account balance.

• The Sales Tax Deduction Calculator (IRS.gov/salestax) figures the amount you can claim if you itemize deductions on Schedule A (Form 1040), choose not to claim state and local income taxes, and you didn't save your receipts showing the sales tax you paid.

 

Resolving tax-related identity theft issues.

 

• The IRS doesn't initiate contact with taxpayers by email or telephone to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels.

• Go to IRS.gov/idprotection for information and videos.

• If your SSN has been lost or stolen or you suspect you are a victim of tax-related identity theft, visit IRS.gov/id to learn what steps you should take.

 

Checking on the status of your refund.

 

• Go to IRS.gov/refunds.

• Due to changes in the law, the IRS can't issue refunds before February 15, 2017, for returns that claim the EIC or the ACTC. This applies to the entire refund, not just the portion associated with these credits.

• Download the official IRS2Go app to your mobile device to check your refund status.

• Call the automated refund hotline at 1-800-829-1954.

 

Making a tax payment. The IRS uses the latest encryption technology to ensure your electronic payments are safe and secure. You can make electronic payments online, by phone, and from a mobile device using the IRS2Go app. Paying electronically is quick, easy, and faster than mailing in a check or money order. Go to IRS.gov/payments to make a payment using any of the following options.

 

IRS Direct Pay: Pay your individual tax bill or estimated tax payment directly from your checking or savings account at no cost to you.

Debit or credit card: Choose an approved payment processor to pay online, by phone, and by mobile device.

Electronic Funds Withdrawal: Offered only when filing your federal taxes using tax preparation software or through a tax professional.

Electronic Federal Tax Payment System: Best option for businesses. Enrollment is required.

Check or money order: Mail your payment to the address listed on the notice or instructions.

Cash: If cash is your only option, you may be able to pay your taxes at a participating retail store.

 

What if I can't pay now? Go to IRS.gov/payments for more information about your options.

 

• Apply for an online payment agreement (IRS.gov/opa) to meet your tax obligation in monthly installments if you can't pay your taxes in full today. Once you complete the online process, you will receive immediate notification of whether your agreement has been approved.

• Use the Offer in Compromise Pre-Qualifier (IRS.gov/oic) to see if you can settle your tax debt for less than the full amount you owe.

 

Checking the status of an amended return. Go to IRS.gov and click on Where's My Amended Return? (IRS.gov/wmar) under the "Tools" bar to track the status of Form 1040X amended returns. Please note that it can take up to 3 weeks from the date you mailed your amended return for it show up in our system and processing it can take up to 16 weeks.

Understanding an IRS notice or letter. Go to IRS.gov/notices to find additional information about responding to an IRS notice or letter.

Contacting your local IRS office. Keep in mind, many questions can be resolved on IRS.gov without visiting an IRS Tax Assistance Center (TAC). Go to IRS.gov/letushelp for the topics people ask about most. If you still need help, IRS TACs provide tax help when a tax issue can't be handled online or by phone. All TACs now provide service by appointment so you'll know in advance that you can get the service you need without waiting. Before you visit, go to IRS.gov/taclocator to find the nearest TAC, check hours, available services, and appointment options. Or, on the IRS2Go app, under the Stay Connected tab, choose the Contact Us option and click on "Local Offices."

Watching IRS videos. The IRS Video portal (IRSvideos.gov) contains video and audio presentations for individuals, small businesses, and tax professionals.

Getting tax information in other languages. For taxpayers whose native language isn't English, we have the following resources available. Taxpayers can find information on IRS.gov in the following languages.

 

Spanish (IRS.gov/spanish).

Chinese (IRS.gov/chinese).

Vietnamese (IRS.gov/vietnamese).

Korean (IRS.gov/korean).

Russian (IRS.gov/russian).

 

The IRS TACs provide over-the-phone interpreter service in over 170 languages, and the service is available free to taxpayers.

The Taxpayer Advocate Service Is Here To Help You

What is the Taxpayer Advocate Service?

The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that helps taxpayers and protects taxpayer rights. Our job is to ensure that every taxpayer is treated fairly and that you know and understand your rights under the Taxpayer Bill of Rights.

What Can the Taxpayer Advocate Service Do For You?

We can help you resolve problems that you can't resolve with the IRS. And our service is free. If you qualify for our assistance, you will be assigned to one advocate who will work with you throughout the process and will do everything possible to resolve your issue. TAS can help you if:

 

• Your problem is causing financial difficulty for you, your family, or your business,

• You face (or your business is facing) an immediate threat of adverse action, or

• You've tried repeatedly to contact the IRS but no one has responded, or the IRS hasn't responded by the date promised.

 

How Can You Reach Us?

We have offices in every state, the District of Columbia, and Puerto Rico. Your local advocate's number is in your local directory and at taxpayeradvocate.irs.gov. You can also call us at 1-877-777-4778.

How Can You Learn About Your Taxpayer Rights?

The Taxpayer Bill of Rights describes 10 basic rights that all taxpayers have when dealing with the IRS. Our Tax Toolkit at taxpayeradvocate.irs.gov can help you understand what these rights mean to you and how they apply. These are your rights. Know them. Use them.

How Else Does the Taxpayer Advocate Service Help Taxpayers?

TAS works to resolve large-scale problems that affect many taxpayers. If you know of one of these broad issues, please report it to us at IRS.gov/sams.

Low Income Taxpayer Clinics

Low Income Taxpayer Clinics (LITCs) serve individuals whose income is below a certain level and need to resolve tax problems such as audits, appeals, and tax collection disputes. Some clinics can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. To find a clinic near you, visit IRS.gov/litc or see IRS Publication 4134, Low Income Taxpayer Clinic List.

Appendix A. MACRS Percentage Table Guide

General Depreciation System (GDS)

Alternative Depreciation System (ADS)

Chart 1. Use this chart to find the correct percentage table to use for any property other than residential rental and nonresidential real property. Use Chart 2 for residential rental and nonresidential real property.

 -------------------------------------------------------------

 

 MACRS   Depreciation

 

 System  Method        Recovery Period            Convention

 

 -------------------------------------------------------------

 

 GDS     200%          GDS/3, 5, 7, 10 (Nonfarm)  Half-Year

 

 -------------------------------------------------------------

 

 GDS     200%          GDS/3, 5, 7, 10 (Nonfarm)  Mid-Quarter

 

 -------------------------------------------------------------

 

 GDS     150%          GDS/3, 5, 7, 10            Half-Year

 

 -------------------------------------------------------------

 

 GDS     150%          GDS/3, 5, 7, 10            Mid-Quarter

 

 -------------------------------------------------------------

 

 GDS     150%          GDS/15, 20                 Half-Year

 

 -------------------------------------------------------------

 

 GDS     150%          GDS/15, 20                 Mid-Quarter

 

 -------------------------------------------------------------

 

 GDS     SL            GDS                        Half-Year

 

 ADS                   ADS

 

 -------------------------------------------------------------

 

 GDS     SL            GDS                        Mid-Quarter

 

 ADS                   ADS

 

 -------------------------------------------------------------

 

 ADS     150%          ADS                        Half-Year

 

 -------------------------------------------------------------

 

 ADS     150%          ADS                        Mid-Quarter

 

 -------------------------------------------------------------

 

 [Table Continued]

 

 ---------------------------------------

 

                      Month or

 

                      Quarter

 

 MACRS                Placed

 

 System  Class        in Service   Table

 

 ---------------------------------------

 

 GDS     3, 5, 7, 10  Any          A-1

 

 ---------------------------------------

 

 GDS     3, 5, 7, 10  1st Qtr      A-2

 

                      2nd Qtr      A-3

 

                      3rd Qtr      A-4

 

                      4th Qtr      A-5

 

 ---------------------------------------

 

 GDS     3, 5, 7, 10  Any          A-14

 

 ---------------------------------------

 

 GDS     3, 5, 7, 10  1st Qtr      A-15

 

                      2nd Qtr      A-16

 

                      3rd Qtr      A-17

 

                      4th Qtr      A-18

 

 ---------------------------------------

 

 GDS     15 & 20      Any          A-1

 

 ---------------------------------------

 

 GDS     15 & 20      1st Qtr      A-2

 

                      2nd Qtr      A-3

 

                      3rd Qtr      A-4

 

                      4th Qtr      A-5

 

 ---------------------------------------

 

 GDS     Any          Any          A-8

 

 ADS

 

 ---------------------------------------

 

 GDS     Any          1st Qtr      A-9

 

 ADS                  2nd Qtr      A-10

 

                      3rd Qtr      A-11

 

                      4th Qtr      A-12

 

 ---------------------------------------

 

 ADS     Any          Any          A-14

 

 ---------------------------------------

 

 ADS     Any          1st Qtr      A-15

 

                      2nd Qtr      A-16

 

                      3rd Qtr      A-17

 

                      4th Qtr      A-18

 

 ---------------------------------------

 

 

Chart 2. Use this chart to find the correct percentage table to use for residential rental and nonresidential real property. Use Chart 1 for all other property.

 --------------------------------------------------

 

 MACRS   Depreciation

 

 System  Method        Recovery Period   Convention

 

 --------------------------------------------------

 

 GDS     SL            GDS/27.5          Mid-Month

 

 --------------------------------------------------

 

 GDS     SL            GDS/31.5          Mid-Month

 

         SL            GDS/39

 

 --------------------------------------------------

 

 ADS     SL            ADS/40            Mid-Month

 

 --------------------------------------------------

 

 [Table Continued]

 

 -----------------------------------------------

 

                              Month or

 

                              Quarter

 

 MACRS                        Placed

 

 System  Class                in Service   Table

 

 -----------------------------------------------

 

 GDS     Residential Rental   Any          A-6

 

 -----------------------------------------------

 

 GDS     Nonresidential Real  Any          A-7

 

                                           A-7a

 

 -----------------------------------------------

 

 ADS     Residential Rental   Any          A-13

 

         and

 

         Nonresidential Real

 

 -----------------------------------------------

 

 

Chart 3. Income Inclusion Amount Rates for MACRS Leased Listed Property

 -----------------------------------------------

 

                                     Table

 

 -----------------------------------------------

 

 Amount A Percentages                A-19

 

 -----------------------------------------------

 

 Amount B Percentages                A-20

 

 -----------------------------------------------

 

 

Table A-1. 3-, 5-, 7-, 10-, 15-, and 20-Year Property Half-Year Convention

 ---------------------------------------------------------

 

              Depreciation rate for recovery period

 

  Year  --------------------------------------------------

 

         3-year  5-year  7-year  10-year  15-year  20-year

 

 ---------------------------------------------------------

 

   1     33.33%  20.00%  14.29%  10.00%    5.00%    3.750%

 

   2     44.45   32.00   24.49   18.00     9.50     7.219

 

   3     14.81   19.20   17.49   14.40     8.55     6.677

 

   4      7.41   11.52   12.49   11.52     7.70     6.177

 

   5             11.52    8.93    9.22     6.93     5.713

 

   6              5.76    8.92    7.37     6.23     5.285

 

   7                      8.93    6.55     5.90     4.888

 

   8                      4.46    6.55     5.90     4.522

 

   9                              6.56     5.91     4.462

 

  10                              6.55     5.90     4.461

 

  11                              3.28     5.91     4.462

 

  12                                       5.90     4.461

 

  13                                       5.91     4.462

 

  14                                       5.90     4.461

 

  15                                       5.91     4.462

 

  16                                       2.95     4.461

 

  17                                                4.462

 

  18                                                4.461

 

  19                                                4.462

 

  20                                                4.461

 

  21                                                2.231

 

 ---------------------------------------------------------

 

 

Table A-2. 3-, 5-, 7-, 10-, 15-, and 20-Year Property Mid-Quarter Convention Placed in Service in First Quarter

 ---------------------------------------------------------

 

              Depreciation rate for recovery period

 

  Year  --------------------------------------------------

 

         3-year  5-year  7-year  10-year  15-year  20-year

 

 ---------------------------------------------------------

 

   1     58.33%  35.00%  25.00%  17.50%    8.75%    6.563%

 

   2     27.78   26.00   21.43   16.50     9.13     7.000

 

   3     12.35   15.60   15.31   13.20     8.21     6.482

 

   4      1.54   11.01   10.93   10.56     7.39     5.996

 

   5             11.01    8.75    8.45     6.65     5.546

 

   6              1.38    8.74    6.76     5.99     5.130

 

   7                      8.75    6.55     5.90     4.746

 

   8                      1.09    6.55     5.91     4.459

 

   9                              6.56     5.90     4.459

 

  10                              6.55     5.91     4.459

 

  11                              0.82     5.90     4.459

 

  12                                       5.91     4.460

 

  13                                       5.90     4.459

 

  14                                       5.91     4.460

 

  15                                       5.90     4.459

 

  16                                       0.74     4.460

 

  17                                                4.459

 

  18                                                4.460

 

  19                                                4.459

 

  20                                                4.460

 

  21                                                0.565

 

 ---------------------------------------------------------

 

 

Table A-3. 3-, 5-, 7-, 10-, 15-, and 20-Year Property Mid-Quarter Convention Placed in Service in Second Quarter

 ---------------------------------------------------------

 

              Depreciation rate for recovery period

 

  Year  --------------------------------------------------

 

         3-year  5-year  7-year  10-year  15-year  20-year

 

 ---------------------------------------------------------

 

   1     41.67%  25.00%  17.85%  12.50%    6.25%    4.688%

 

   2     38.89   30.00   23.47   17.50     9.38     7.148

 

   3     14.14   18.00   16.76   14.00     8.44     6.612

 

   4      5.30   11.37   11.97   11.20     7.59     6.116

 

   5             11.37    8.87    8.96     6.83     5.658

 

   6              4.26    8.87    7.17     6.15     5.233

 

   7                      8.87    6.55     5.91     4.841

 

   8                      3.34    6.55     5.90     4.478

 

   9                              6.56     5.91     4.463

 

  10                              6.55     5.90     4.463

 

  11                              2.46     5.91     4.463

 

  12                                       5.90     4.463

 

  13                                       5.91     4.463

 

  14                                       5.90     4.463

 

  15                                       5.91     4.462

 

  16                                       2.21     4.463

 

  17                                                4.462

 

  18                                                4.463

 

  19                                                4.462

 

  20                                                4.463

 

  21                                                1.673

 

 ---------------------------------------------------------

 

 

Table A-4. 3-, 5-, 7-, 10-, 15-, and 20-Year Property Mid-Quarter Convention Placed in Service in Third Quarter

 ---------------------------------------------------------

 

              Depreciation rate for recovery period

 

  Year  --------------------------------------------------

 

         3-year  5-year  7-year  10-year  15-year  20-year

 

 ---------------------------------------------------------

 

   1     25.00%  15.00%  10.71%   7.50%    3.75%    2.813%

 

   2     50.00   34.00   25.51   18.50     9.63     7.289

 

   3     16.67   20.40   18.22   14.80     8.66     6.742

 

   4      8.33   12.24   13.02   11.84     7.80     6.237

 

   5             11.30    9.30    9.47     7.02     5.769

 

   6              7.06    8.85    7.58     6.31     5.336

 

   7                      8.86    6.55     5.90     4.936

 

   8                      5.53    6.55     5.90     4.566

 

   9                              6.56     5.91     4.460

 

  10                              6.55     5.90     4.460

 

  11                              4.10     5.91     4.460

 

  12                                       5.90     4.460

 

  13                                       5.91     4.461

 

  14                                       5.90     4.460

 

  15                                       5.91     4.461

 

  16                                       3.69     4.460

 

  17                                                4.461

 

  18                                                4.460

 

  19                                                4.461

 

  20                                                4.460

 

  21                                                2.788

 

 ---------------------------------------------------------

 

 

Table A-5. 3-, 5-, 7-, 10-, 15-, and 20-Year Property Mid-Quarter Convention Placed in Service in Fourth Quarter

 ---------------------------------------------------------

 

               Depreciation rate for recovery period

 

  Year  --------------------------------------------------

 

        3-year  5-year  7-year  10-year  15-year  20-year

 

 ---------------------------------------------------------

 

   1     8.33%   5.00%   3.57%   2.50%     1.25%    0.938%

 

   2    61.11   38.00   27.55   19.50      9.88     7.430

 

   3    20.37   22.80   19.68   15.60      8.89     6.872

 

   4    10.19   13.68   14.06   12.48      8.00     6.357

 

   5            10.94   10.04    9.98      7.20     5.880

 

   6             9.58    8.73    7.99      6.48     5.439

 

   7                     8.73    6.55      5.90     5.031

 

   8                     7.64    6.55      5.90     4.654

 

   9                             6.56      5.90     4.458

 

  10                             6.55      5.91     4.458

 

  11                             5.74      5.90     4.458

 

  12                                       5.91     4.458

 

  13                                       5.90     4.458

 

  14                                       5.91     4.458

 

  15                                       5.90     4.458

 

  16                                       5.17     4.458

 

  17                                                4.458

 

  18                                                4.459

 

  19                                                4.458

 

  20                                                4.459

 

  21                                                3.901

 

 ---------------------------------------------------------

 

 

Table A-6. Residential Rental Property Mid-Month Convention Straight Line--27.5 Years

 ----------------------------------------------------

 

               Month property placed in service

 

  Year  ---------------------------------------------

 

         1       2      3        4       5       6

 

 ----------------------------------------------------

 

   1   3.485%  3.182%  2.879%  2.576%  2.273%  1.970%

 

 2-9   3.636   3.636   3.636   3.636   3.636   3.636

 

  10   3.637   3.637   3.637   3.637   3.637   3.637

 

  11   3.636   3.636   3.636   3.636   3.636   3.636

 

  12   3.637   3.637   3.637   3.637   3.637   3.637

 

  13   3.636   3.636   3.636   3.636   3.636   3.636

 

  14   3.637   3.637   3.637   3.637   3.637   3.637

 

  15   3.636   3.636   3.636   3.636   3.636   3.636

 

  16   3.637   3.637   3.637   3.637   3.637   3.637

 

  17   3.636   3.636   3.636   3.636   3.636   3.636

 

  18   3.637   3.637   3.637   3.637   3.637   3.637

 

  19   3.636   3.636   3.636   3.636   3.636   3.636

 

  20   3.637   3.637   3.637   3.637   3.637   3.637

 

  21   3.636   3.636   3.636   3.636   3.636   3.636

 

  22   3.637   3.637   3.637   3.637   3.637   3.637

 

  23   3.636   3.636   3.636   3.636   3.636   3.636

 

  24   3.637   3.637   3.637   3.637   3.637   3.637

 

  25   3.636   3.636   3.636   3.636   3.636   3.636

 

  26   3.637   3.637   3.637   3.637   3.637   3.637

 

  27   3.636   3.636   3.636   3.636   3.636   3.636

 

  28   1.97    2.273   2.576   2.879   3.182   3.485

 

  29

 

 ----------------------------------------------------

 

 [Table Continued]

 

 ----------------------------------------------------

 

             Month property placed in service

 

  Year  ---------------------------------------------

 

         7       8       9       10      11      12

 

 ----------------------------------------------------

 

   1   1.667%  1.364%  1.061%  0.758%  0.455%  0.152%

 

 2-9   3.636   3.636   3.636   3.636   3.636   3.636

 

  10   3.636   3.636   3.636   3.636   3.636   3.636

 

  11   3.637   3.637   3.637   3.637   3.637   3.637

 

  12   3.636   3.636   3.636   3.636   3.636   3.636

 

  13   3.637   3.637   3.637   3.637   3.637   3.637

 

  14   3.636   3.636   3.636   3.636   3.636   3.636

 

  15   3.637   3.637   3.637   3.637   3.637   3.637

 

  16   3.636   3.636   3.636   3.636   3.636   3.636

 

  17   3.637   3.637   3.637   3.637   3.637   3.637

 

  18   3.636   3.636   3.636   3.636   3.636   3.636

 

  19   3.637   3.637   3.637   3.637   3.637   3.637

 

  20   3.636   3.636   3.636   3.636   3.636   3.636

 

  21   3.637   3.637   3.637   3.637   3.637   3.637

 

  22   3.636   3.636   3.636   3.636   3.636   3.636

 

  23   3.637   3.637   3.637   3.637   3.637   3.637

 

  24   3.636   3.636   3.636   3.636   3.636   3.636

 

  25   3.637   3.637   3.637   3.637   3.637   3.637

 

  26   3.636   3.636   3.636   3.636   3.636   3.636

 

  27   3.637   3.637   3.637   3.637   3.637   3.637

 

  28   3.636   3.636   3.636   3.636   3.636   3.636

 

  29   0.152   0.455   0.758   1.061   1.364   1.667

 

 ----------------------------------------------------

 

 

Table A-7. Nonresidential Real Property Mid-Month Convention Straight Line--31.5 Years

 ----------------------------------------------------

 

               Month property placed in service

 

  Year  ---------------------------------------------

 

         1       2      3        4       5       6

 

 ----------------------------------------------------

 

   1   3.042%  2.778%  2.513%  2.249%  1.984%  1.720%

 

 2-7   3.175   3.175   3.175   3.175   3.175   3.175

 

   8   3.175   3.174   3.175   3.174   3.175   3.174

 

   9   3.174   3.175   3.174   3.175   3.174   3.175

 

  10   3.175   3.174   3.175   3.174   3.175   3.174

 

  11   3.174   3.175   3.174   3.175   3.174   3.175

 

  12   3.175   3.174   3.175   3.174   3.175   3.174

 

  13   3.174   3.175   3.174   3.175   3.174   3.175

 

  14   3.175   3.174   3.175   3.174   3.175   3.174

 

  15   3.174   3.175   3.174   3.175   3.174   3.175

 

  16   3.175   3.174   3.175   3.174   3.175   3.174

 

  17   3.174   3.175   3.174   3.175   3.174   3.175

 

  18   3.175   3.174   3.175   3.174   3.175   3.174

 

  19   3.174   3.175   3.174   3.175   3.174   3.175

 

  20   3.175   3.174   3.175   3.174   3.175   3.174

 

  21   3.174   3.175   3.174   3.175   3.174   3.175

 

  22   3.175   3.174   3.175   3.174   3.175   3.174

 

  23   3.174   3.175   3.174   3.175   3.174   3.175

 

  24   3.175   3.174   3.175   3.174   3.175   3.174

 

  25   3.174   3.175   3.174   3.175   3.174   3.175

 

  26   3.175   3.174   3.175   3.174   3.175   3.174

 

  27   3.174   3.175   3.174   3.175   3.174   3.175

 

  28   3.175   3.174   3.175   3.174   3.175   3.174

 

  29   3.174   3.175   3.174   3.175   3.174   3.175

 

  30   3.175   3.174   3.175   3.174   3.175   3.174

 

  31   3.174   3.175   3.174   3.175   3.174   3.175

 

  32   1.720   1.984   2.249   2.513   2.778   3.042

 

  33

 

 ----------------------------------------------------

 

 [Table Continued]

 

 ----------------------------------------------------

 

             Month property placed in service

 

  Year  ---------------------------------------------

 

         7       8       9       10      11      12

 

 ----------------------------------------------------

 

   1   1.455%  1.190%  0.926%  0.661%  0.397%  0.132%

 

 2-7   3.175   3.175   3.175   3.175   3.175   3.175

 

   8   3.175   3.175   3.175   3.175   3.175   3.175

 

   9   3.174   3.175   3.174   3.175   3.174   3.175

 

  10   3.175   3.174   3.175   3.174   3.175   3.174

 

  11   3.174   3.175   3.174   3.175   3.174   3.175

 

  12   3.175   3.174   3.175   3.174   3.175   3.174

 

  13   3.174   3.175   3.174   3.175   3.174   3.175

 

  14   3.175   3.174   3.175   3.174   3.175   3.174

 

  15   3.174   3.175   3.174   3.175   3.174   3.175

 

  16   3.175   3.174   3.175   3.174   3.175   3.174

 

  17   3.174   3.175   3.174   3.175   3.174   3.175

 

  18   3.175   3.174   3.175   3.174   3.175   3.174

 

  19   3.174   3.175   3.174   3.175   3.174   3.175

 

  20   3.175   3.174   3.175   3.174   3.175   3.174

 

  21   3.174   3.175   3.174   3.175   3.174   3.175

 

  22   3.175   3.174   3.175   3.174   3.175   3.174

 

  23   3.174   3.175   3.174   3.175   3.174   3.175

 

  24   3.175   3.174   3.175   3.174   3.175   3.174

 

  25   3.174   3.175   3.174   3.175   3.174   3.175

 

  26   3.175   3.174   3.175   3.174   3.175   3.174

 

  27   3.174   3.175   3.174   3.175   3.174   3.175

 

  28   3.175   3.174   3.175   3.174   3.175   3.174

 

  29   3.174   3.175   3.174   3.175   3.174   3.175

 

  30   3.175   3.174   3.175   3.174   3.175   3.174

 

  31   3.174   3.175   3.174   3.175   3.174   3.175

 

  32   3.175   3.174   3.175   3.174   3.175   3.174

 

  33   0.132   0.397   0.661   0.926   1.190   1.455

 

 ----------------------------------------------------

 

 

Table A-7a. Nonresidential Real Property Mid-Month Convention Straight Line--39 Years

 ----------------------------------------------------

 

               Month property placed in service

 

  Year  ---------------------------------------------

 

         1       2      3        4       5       6

 

 ----------------------------------------------------

 

    1  2.461%  2.247%  2.033%  1.819%  1.605%  1.391%

 

 2-39  2.564   2.564   2.564   2.564   2.564   2.564

 

   40  0.107   0.321   0.535   0.749   0.963   1.177

 

 ----------------------------------------------------

 

 [Table Continued]

 

 ----------------------------------------------------

 

             Month property placed in service

 

  Year  ---------------------------------------------

 

         7       8       9       10      11      12

 

 ----------------------------------------------------

 

    1  1.177%  0.963%  0.749%  0.535%  0.321%  0.107%

 

 2-39  2.564   2.564   2.564   2.564   2.564   2.564

 

   40  1.391   1.605   1.819   2.033   2.247   2.461

 

 ----------------------------------------------------

 

 

Table A-8. Straight Line Method Half-Year Convention

 -----------------------------------------------------------------

 

                            Recovery periods in years

 

  Year   ---------------------------------------------------------

 

          2.5      3      3.5       4       5        6      6.5

 

 -----------------------------------------------------------------

 

   1     20.0%   16.67%  14.29%   12.5%    10.0%    8.33%   7.69%

 

   2     40.0    33.33   28.57    25.0     20.0    16.67   15.39

 

   3     40.0    33.33   28.57    25.0     20.0    16.67   15.38

 

   4             16.67   28.57    25.0     20.0    16.67   15.39

 

   5                              12.5     20.0    16.66   15.38

 

   6                                       10.0    16.67   15.39

 

   7                                                8.33   15.38

 

   8

 

   9

 

  10

 

 -----------------------------------------------------------------

 

 [Table Continued]

 

 ----------------------------------------------------------

 

                     Recovery periods in years

 

  Year   --------------------------------------------------

 

            7      7.5       8       8.5       9      9.5

 

 ----------------------------------------------------------

 

   1      7.14%    6.67%    6.25%    5.88%    5.56%   5.26%

 

   2     14.29    13.33    12.50    11.77    11.11   10.53

 

   3     14.29    13.33    12.50    11.76    11.11   10.53

 

   4     14.28    13.33    12.50    11.77    11.11   10.53

 

   5     14.29    13.34    12.50    11.76    11.11   10.52

 

   6     14.28    13.33    12.50    11.77    11.11   10.53

 

   7     14.29    13.34    12.50    11.76    11.11   10.52

 

   8      7.14    13.33    12.50    11.77    11.11   10.53

 

   9                        6.25    11.76    11.11   10.52

 

  10                                          5.56   10.53

 

 ----------------------------------------------------------

 

 [Table Continued]

 

 -----------------------------------------------------------------

 

                          Recovery periods in years

 

  Year   ---------------------------------------------------------

 

          10      10.5      11     11.5       12    12.5      13

 

 -----------------------------------------------------------------

 

   1      5.0%    4.76%   4.55%    4.35%    4.17%   4.0%    3.85%

 

   2     10.0     9.52    9.09     8.70     8.33    8.0     7.69

 

   3     10.0     9.52    9.09     8.70     8.33    8.0     7.69

 

   4     10.0     9.53    9.09     8.69     8.33    8.0     7.69

 

   5     10.0     9.52    9.09     8.70     8.33    8.0     7.69

 

   6     10.0     9.53    9.09     8.69     8.33    8.0     7.69

 

   7     10.0     9.52    9.09     8.70     8.34    8.0     7.69

 

   8     10.0     9.53    9.09     8.69     8.33    8.0     7.69

 

   9     10.0     9.52    9.09     8.70     8.34    8.0     7.69

 

  10     10.0     9.53    9.09     8.69     8.33    8.0     7.70

 

  11      5.0     9.52    9.09     8.70     8.34    8.0     7.69

 

  12                      4.55     8.69     8.33    8.0     7.70

 

  13                                        4.17    8.0     7.69

 

  14                                                        3.85

 

  15

 

  16

 

  17

 

  18

 

 -----------------------------------------------------------------

 

 [Table Continued]

 

 ----------------------------------------------------------

 

                      Recovery periods in years

 

  Year   --------------------------------------------------

 

          13.5       14       15       16     16.5      17

 

 ----------------------------------------------------------

 

   1      3.70%    3.57%    3.33%    3.13%    3.03%   2.94%

 

   2      7.41     7.14     6.67     6.25     6.06    5.88

 

   3      7.41     7.14     6.67     6.25     6.06    5.88

 

   4      7.41     7.14     6.67     6.25     6.06    5.88

 

   5      7.41     7.14     6.67     6.25     6.06    5.88

 

   6      7.41     7.14     6.67     6.25     6.06    5.88

 

   7      7.41     7.14     6.67     6.25     6.06    5.88

 

   8      7.41     7.15     6.66     6.25     6.06    5.88

 

   9      7.41     7.14     6.67     6.25     6.06    5.88

 

  10      7.40     7.15     6.66     6.25     6.06    5.88

 

  11      7.41     7.14     6.67     6.25     6.06    5.89

 

  12      7.40     7.15     6.66     6.25     6.06    5.88

 

  13      7.41     7.14     6.67     6.25     6.06    5.89

 

  14      7.40     7.15     6.66     6.25     6.06    5.88

 

  15               3.57     6.67     6.25     6.06    5.89

 

  16                        3.33     6.25     6.06    5.88

 

  17                                 3.12     6.07    5.89

 

  18                                                  2.94

 

 ----------------------------------------------------------

 

 [Table Continued]

 

 -----------------------------------------------------------------

 

                        Recovery periods in years

 

  Year  ----------------------------------------------------------

 

          18      19       20        22       24     25      26.5

 

 -----------------------------------------------------------------

 

   1      2.78%   2.63%   2.5%     2.273%   2.083%  2.0%    1.887%

 

   2      5.56    5.26    5.0      4.545    4.167   4.0     3.774

 

   3      5.56    5.26    5.0      4.545    4.167   4.0     3.774

 

   4      5.55    5.26    5.0      4.545    4.167   4.0     3.774

 

   5      5.56    5.26    5.0      4.546    4.167   4.0     3.774

 

   6      5.55    5.26    5.0      4.545    4.167   4.0     3.774

 

   7      5.56    5.26    5.0      4.546    4.167   4.0     3.773

 

   8      5.55    5.26    5.0      4.545    4.167   4.0     3.774

 

   9      5.56    5.27    5.0      4.546    4.167   4.0     3.773

 

  10      5.55    5.26    5.0      4.545    4.167   4.0     3.774

 

  11      5.56    5.27    5.0      4.546    4.166    4.0    3.773

 

  12      5.55    5.26    5.0      4.545    4.167    4.0    3.774

 

  13      5.56    5.27    5.0      4.546    4.166    4.0    3.773

 

  14      5.55    5.26    5.0      4.545    4.167    4.0    3.773

 

  15      5.56    5.27    5.0      4.546    4.166    4.0    3.774

 

  16      5.55    5.26    5.0      4.545    4.167    4.0    3.773

 

  17      5.56    5.27    5.0      4.546    4.166    4.0    3.774

 

  18      5.55    5.26    5.0      4.545    4.167    4.0    3.773

 

  19      2.78    5.27    5.0      4.546    4.166    4.0    3.774

 

  20              2.63    5.0      4.545    4.167    4.0    3.773

 

  21                      2.5      4.546    4.166    4.0    3.774

 

  22                               4.545    4.167    4.0    3.773

 

  23                               2.273    4.166    4.0    3.774

 

  24                                        4.167    4.0    3.773

 

  25                                        2.083    4.0    3.774

 

  26                                                 2.0    3.773

 

  27                                                        3.774

 

  28

 

  29

 

  30

 

  31

 

  32

 

  33

 

  34

 

  35

 

  36

 

  37

 

  38

 

  39

 

  40

 

  41

 

  42

 

  43

 

  44

 

  45

 

  46

 

 47-50

 

  51

 

 -----------------------------------------------------------------

 

 [Table Continued]

 

 ----------------------------------------------------------

 

                     Recovery periods in years

 

  Year  ---------------------------------------------------

 

          28         30       35       40       45     50

 

 ----------------------------------------------------------

 

   1      1.786%   1.667%   1.429%   1.25%    1.111%  1.0%

 

   2      3.571    3.333    2.857    2.50     2.222   2.0

 

   3      3.571    3.333    2.857    2.50     2.222   2.0

 

   4      3.571    3.333    2.857    2.50     2.222   2.0

 

   5      3.571    3.333    2.857    2.50     2.222   2.0

 

   6      3.571    3.333    2.857    2.50     2.222   2.0

 

   7      3.572    3.333    2.857    2.50     2.222   2.0

 

   8      3.571    3.333    2.857    2.50     2.222   2.0

 

   9      3.572    3.333    2.857    2.50     2.222   2.0

 

  10      3.571    3.333    2.857    2.50     2.222   2.0

 

  11      3.572    3.333    2.857    2.50     2.222   2.0

 

  12      3.571    3.333    2.857    2.50     2.222   2.0

 

  13      3.572    3.334    2.857    2.50     2.222   2.0

 

  14      3.571    3.333    2.857    2.50     2.222   2.0

 

  15      3.572    3.334    2.857    2.50     2.222   2.0

 

  16      3.571    3.333    2.857    2.50     2.222   2.0

 

  17      3.572    3.334    2.857    2.50     2.222   2.0

 

  18      3.571    3.333    2.857    2.50     2.222   2.0

 

  19      3.572    3.334    2.857    2.50     2.222   2.0

 

  20      3.571    3.333    2.857    2.50     2.222   2.0

 

  21      3.572    3.334    2.857    2.50     2.222   2.0

 

  22      3.571    3.333    2.857    2.50     2.222   2.0

 

  23      3.572    3.334    2.857    2.50     2.222   2.0

 

  24      3.571    3.333    2.857    2.50     2.222   2.0

 

  25      3.572    3.334    2.857    2.50     2.222   2.0

 

  26      3.571    3.333    2.857    2.50     2.222   2.0

 

  27      3.572    3.334    2.857    2.50     2.223   2.0

 

  28      3.571    3.333    2.858    2.50     2.222   2.0

 

  29      1.786    3.334    2.857    2.50     2.223   2.0

 

  30               3.333    2.858    2.50     2.222   2.0

 

  31               1.667    2.857    2.50     2.223   2.0

 

  32                        2.858    2.50     2.222   2.0

 

  33                        2.857    2.50     2.223   2.0

 

  34                        2.858    2.50     2.222   2.0

 

  35                        2.857    2.50     2.223   2.0

 

  36                        1.429    2.50     2.222   2.0

 

  37                                 2.50     2.223   2.0

 

  38                                 2.50     2.222   2.0

 

  39                                 2.50     2.223   2.0

 

  40                                 2.50     2.222   2.0

 

  41                                 1.25     2.223   2.0

 

  42                                          2.222   2.0

 

  43                                          2.223   2.0

 

  44                                          2.222   2.0

 

  45                                          2.223   2.0

 

  46                                          1.111   2.0

 

 47-50                                                2.0

 

  51                                                  1.0

 

 ---------------------------------------------------------

 

 

Table A-9. Straight Line Method Mid-Quarter Convention Placed in Service in First Quarter

 -----------------------------------------------------------------

 

                          Recovery periods in years

 

  Year  ----------------------------------------------------------

 

         2.5      3      3.5       4       5         6      6.5

 

 -----------------------------------------------------------------

 

   1    35.0%   29.17%  25.00%   21.88%   17.5%    14.58%  13.46%

 

   2    40.0    33.33   28.57    25.00    20.0     16.67   15.38

 

   3    25.0    33.33   28.57    25.00    20.0     16.67   15.39

 

   4             4.17   17.86    25.00    20.0     16.67   15.38

 

   5                              3.12    20.0     16.66   15.39

 

   6                                       2.5     16.67   15.38

 

   7                                                2.08    9.62

 

   8

 

   9

 

  10

 

 -----------------------------------------------------------------

 

 [Table Continued]

 

 -----------------------------------------------------------

 

                     Recovery periods in years

 

  Year  ----------------------------------------------------

 

           7      7.5       8       8.5       9       9.5

 

 -----------------------------------------------------------

 

   1    12.50%   11.67%   10.94%   10.29%    9.72%    9.21%

 

   2    14.29    13.33    12.50    11.77    11.11    10.53

 

   3    14.28    13.33    12.50    11.76    11.11    10.53

 

   4    14.29    13.33    12.50    11.77    11.11    10.53

 

   5    14.28    13.34    12.50    11.76    11.11    10.52

 

   6    14.29    13.33    12.50    11.77    11.11    10.53

 

   7    14.28    13.34    12.50    11.76    11.11    10.52

 

   8     1.79     8.33    12.50    11.77    11.12    10.53

 

   9                       1.56     7.35    11.11    10.52

 

  10                                         1.39     6.58

 

 -----------------------------------------------------------

 

 [Table Continued]

 

 ----------------------------------------------------------------

 

                        Recovery periods in years

 

  Year  ---------------------------------------------------------

 

          10     10.5     11      11.5      12     12.5      13

 

 ----------------------------------------------------------------

 

   1     8.75%   8.33%   7.95%    7.61%    7.29%    7.0%    6.73%

 

   2    10.00    9.52    9.09     8.70     8.33     8.0     7.69

 

   3    10.00    9.52    9.09     8.70     8.33     8.0     7.69

 

   4    10.00    9.53    9.09     8.69     8.33     8.0     7.69

 

   5    10.00    9.52    9.09     8.70     8.33     8.0     7.69

 

   6    10.00    9.53    9.09     8.69     8.34     8.0     7.69

 

   7    10.00    9.52    9.09     8.70     8.33     8.0     7.69

 

   8    10.00    9.53    9.09     8.69     8.34     8.0     7.69

 

   9    10.00    9.52    9.09     8.70     8.33     8.0     7.70

 

  10    10.00    9.53    9.10     8.69     8.34     8.0     7.69

 

  11     1.25    5.95    9.09     8.70     8.33     8.0     7.70

 

  12                     1.14     5.43     8.34     8.0     7.69

 

  13                                       1.04     5.0     7.70

 

  14                                                        0.96

 

  15

 

  16

 

  17

 

  18

 

 ----------------------------------------------------------------

 

 [Table Continued]

 

 -----------------------------------------------------------

 

                    Recovery periods in years

 

  Year  ----------------------------------------------------

 

         13.5      14       15       16       16.5     17

 

 -----------------------------------------------------------

 

   1     6.48%    6.25%    5.83%    5.47%    5.30%    5.15%

 

   2     7.41     7.14     6.67     6.25     6.06     5.88

 

   3     7.41     7.14     6.67     6.25     6.06     5.88

 

   4     7.41     7.14     6.67     6.25     6.06     5.88

 

   5     7.41     7.14     6.67     6.25     6.06     5.88

 

   6     7.41     7.14     6.67     6.25     6.06     5.88

 

   7     7.41     7.14     6.67     6.25     6.06     5.88

 

   8     7.41     7.15     6.66     6.25     6.06     5.88

 

   9     7.40     7.14     6.67     6.25     6.06     5.88

 

  10     7.41     7.15     6.66     6.25     6.06     5.88

 

  11     7.40     7.14     6.67     6.25     6.06     5.88

 

  12     7.41     7.15     6.66     6.25     6.06     5.89

 

  13     7.40     7.14     6.67     6.25     6.06     5.88

 

  14     4.63     7.15     6.66     6.25     6.06     5.89

 

  15              0.89     6.67     6.25     6.06     5.88

 

  16                       0.83     6.25     6.07     5.89

 

  17                                0.78     3.79     5.88

 

  18                                                  0.74

 

 -----------------------------------------------------------

 

 [Table Continued]

 

 -----------------------------------------------------------------

 

                      Recovery periods in years

 

 Year  -----------------------------------------------------------

 

          18      19       20       22       24      25      26.5

 

 -----------------------------------------------------------------

 

   1     4.86%   4.61%   4.375%   3.977%   3.646%   3.5%    3.302%

 

   2     5.56    5.26    5.000    4.545    4.167    4.0     3.774

 

   3     5.56    5.26    5.000    4.545    4.167    4.0     3.774

 

   4     5.56    5.26    5.000    4.546    4.167    4.0     3.774

 

   5     5.55    5.26    5.000    4.545    4.167    4.0     3.774

 

   6     5.56    5.26    5.000    4.546    4.167    4.0     3.774

 

   7     5.55    5.26    5.000    4.545    4.167    4.0     3.773

 

   8     5.56    5.26    5.000    4.546    4.167    4.0     3.774

 

   9     5.55    5.26    5.000    4.545    4.167    4.0     3.773

 

  10     5.56    5.27    5.000    4.546    4.166    4.0     3.774

 

  11     5.55    5.26    5.000    4.545    4.167    4.0     3.773

 

  12     5.56    5.27    5.000    4.546    4.166    4.0     3.774

 

  13     5.55    5.26    5.000    4.545    4.167    4.0     3.773

 

  14     5.56    5.27    5.000    4.546    4.166    4.0     3.774

 

  15     5.55    5.26    5.000    4.545    4.167    4.0     3.773

 

  16     5.56    5.27    5.000    4.546    4.166    4.0     3.774

 

  17     5.55    5.26    5.000    4.545    4.167    4.0     3.773

 

  18     5.56    5.27    5.000    4.546    4.166    4.0     3.774

 

  19     0.69    5.26    5.000    4.545    4.167    4.0     3.773

 

  20             0.66    5.000    4.546    4.166    4.0     3.774

 

  21                     0.625    4.545    4.167    4.0     3.773

 

  22                              4.546    4.166    4.0     3.774

 

  23                              0.568    4.167    4.0     3.773

 

  24                                       4.166    4.0     3.774

 

  25                                       0.521    4.0     3.773

 

  26                                                0.5     3.774

 

  27                                                        2.358

 

  28

 

  29

 

  30

 

  31

 

  32

 

  33

 

  34

 

  35

 

  36

 

  37

 

  38

 

  39

 

  40

 

  41

 

  42

 

  43

 

  44

 

  45

 

  46

 

 47-50

 

  51

 

 -----------------------------------------------------------------

 

 [Table Continued]

 

 -----------------------------------------------------------

 

                    Recovery periods in years

 

 Year  -----------------------------------------------------

 

          28         30       35       40       45      50

 

 -----------------------------------------------------------

 

   1     3.125%   2.917%   2.500%   2.188%   1.944%   1.75%

 

   2     3.571    3.333    2.857    2.500    2.222    2.00

 

   3     3.571    3.333    2.857    2.500    2.222    2.00

 

   4     3.571    3.333    2.857    2.500    2.222    2.00

 

   5     3.571    3.333    2.857    2.500    2.222    2.00

 

   6     3.572    3.333    2.857    2.500    2.222    2.00

 

   7     3.571    3.333    2.857    2.500    2.222    2.00

 

   8     3.572    3.333    2.857    2.500    2.222    2.00

 

   9     3.571    3.333    2.857    2.500    2.222    2.00

 

  10     3.572    3.333    2.857    2.500    2.222    2.00

 

  11     3.571    3.333    2.857    2.500    2.222    2.00

 

  12     3.572    3.333    2.857    2.500    2.222    2.00

 

  13     3.571    3.334    2.857    2.500    2.222    2.00

 

  14     3.572    3.333    2.857    2.500    2.222    2.00

 

  15     3.571    3.334    2.857    2.500    2.222    2.00

 

  16     3.572    3.333    2.857    2.500    2.222    2.00

 

  17     3.571    3.334    2.857    2.500    2.222    2.00

 

  18     3.572    3.333    2.857    2.500    2.222    2.00

 

  19     3.571    3.334    2.857    2.500    2.222    2.00

 

  20     3.572    3.333    2.857    2.500    2.222    2.00

 

  21     3.571    3.334    2.857    2.500    2.222    2.00

 

  22     3.572    3.333    2.857    2.500    2.222    2.00

 

  23     3.571    3.334    2.857    2.500    2.222    2.00

 

  24     3.572    3.333    2.857    2.500    2.222    2.00

 

  25     3.571    3.334    2.857    2.500    2.222    2.00

 

  26     3.572    3.333    2.857    2.500    2.223    2.00

 

  27     3.571    3.334    2.858    2.500    2.222    2.00

 

  28     3.572    3.333    2.857    2.500    2.223    2.00

 

  29     0.446    3.334    2.858    2.500    2.222    2.00

 

  30              3.333    2.857    2.500    2.223    2.00

 

  31              0.417    2.858    2.500    2.222    2.00

 

  32                       2.857    2.500    2.223    2.00

 

  33                       2.858    2.500    2.222    2.00

 

  34                       2.857    2.500    2.223    2.00

 

  35                       2.858    2.500    2.222    2.00

 

  36                       0.357    2.500    2.223    2.00

 

  37                                2.500    2.222    2.00

 

  38                                2.500    2.223    2.00

 

  39                                2.500    2.222    2.00

 

  40                                2.500    2.223    2.00

 

  41                                0.312    2.222    2.00

 

  42                                         2.223    2.00

 

  43                                         2.222    2.00

 

  44                                         2.223    2.00

 

  45                                         2.222    2.00

 

  46                                         0.278    2.00

 

 47-50                                                2.00

 

  51                                                  0.25

 

 -----------------------------------------------------------

 

 

Table A-10. Straight Line Method Mid-Quarter Convention Placed in Service in Second Quarter

 -----------------------------------------------------------------

 

                          Recovery periods in years

 

 Year  -----------------------------------------------------------

 

         2.5      3     3.5       4        5        6      6.5

 

 -----------------------------------------------------------------

 

   1    25.0%   20.83%  17.86%   15.63%   12.5%    10.42%   9.62%

 

   2    40.0    33.33   28.57    25.00    20.0     16.67   15.38

 

   3    35.0    33.34   28.57    25.00    20.0     16.67   15.38

 

   4            12.50   25.00    25.00    20.0     16.66   15.39

 

   5                              9.37    20.0     16.67   15.38

 

   6                                       7.5     16.66   15.39

 

   7                                                6.25   13.46

 

   8

 

   9

 

  10

 

 -----------------------------------------------------------------

 

 [Table Continued]

 

 -----------------------------------------------------------

 

                    Recovery periods in years

 

 Year  -----------------------------------------------------

 

           7      7.5       8       8.5       9       9.5

 

 -----------------------------------------------------------

 

   1     8.93%    8.33%    7.81%    7.35%    6.94%    6.58%

 

   2    14.29    13.33    12.50    11.77    11.11    10.53

 

   3    14.28    13.33    12.50    11.76    11.11    10.53

 

   4    14.29    13.34    12.50    11.77    11.11    10.53

 

   5    14.28    13.33    12.50    11.76    11.11    10.52

 

   6    14.29    13.34    12.50    11.77    11.11    10.53

 

   7    14.28    13.33    12.50    11.76    11.11    10.52

 

   8     5.36    11.67    12.50    11.77    11.12    10.53

 

   9                       4.69    10.29    11.11    10.52

 

  10                                         4.17     9.21

 

 -----------------------------------------------------------

 

 [Table Continued]

 

 -----------------------------------------------------------------

 

                          Recovery periods in years

 

 Year  -----------------------------------------------------------

 

          10     10.5     11      11.5      12     12.5      13

 

 -----------------------------------------------------------------

 

   1     6.25%   5.95%   5.68%    5.43%    5.21%    5.0%    4.81%

 

   2    10.00    9.52    9.09     8.70     8.33     8.0     7.69

 

   3    10.00    9.52    9.09     8.70     8.33     8.0     7.69

 

   4    10.00    9.53    9.09     8.70     8.33     8.0     7.69

 

   5    10.00    9.52    9.09     8.69     8.33     8.0     7.69

 

   6    10.00    9.53    9.09     8.70     8.33     8.0     7.69

 

   7    10.00    9.52    9.09     8.69     8.34     8.0     7.69

 

   8    10.00    9.53    9.09     8.70     8.33     8.0     7.69

 

   9    10.00    9.52    9.09     8.69     8.34     8.0     7.69

 

  10    10.00    9.53    9.09     8.70     8.33     8.0     7.70

 

  11     3.75    8.33    9.10     8.69     8.34     8.0     7.69

 

  12                     3.41     7.61     8.33     8.0     7.70

 

  13                                       3.13     7.0     7.69

 

  14                                                        2.89

 

  15

 

  16

 

  17

 

  18

 

 -----------------------------------------------------------------

 

 [Table Continued]

 

 -----------------------------------------------------------

 

                    Recovery periods in years

 

 Year  -----------------------------------------------------

 

         13.5       14       15       16      16.5      17

 

 -----------------------------------------------------------

 

   1     4.63%    4.46%    4.17%    3.91%    3.79%    3.68%

 

   2     7.41     7.14     6.67     6.25     6.06     5.88

 

   3     7.41     7.14     6.67     6.25     6.06     5.88

 

   4     7.41     7.14     6.67     6.25     6.06     5.88

 

   5     7.41     7.14     6.67     6.25     6.06     5.88

 

   6     7.41     7.14     6.67     6.25     6.06     5.88

 

   7     7.41     7.15     6.66     6.25     6.06     5.88

 

   8     7.41     7.14     6.67     6.25     6.06     5.88

 

   9     7.40     7.15     6.66     6.25     6.06     5.88

 

  10     7.41     7.14     6.67     6.25     6.06     5.88

 

  11     7.40     7.15     6.66     6.25     6.06     5.88

 

  12     7.41     7.14     6.67     6.25     6.06     5.89

 

  13     7.40     7.15     6.66     6.25     6.06     5.88

 

  14     6.48     7.14     6.67     6.25     6.06     5.89

 

  15              2.68     6.66     6.25     6.06     5.88

 

  16                       2.50     6.25     6.06     5.89

 

  17                                2.34     5.31     5.88

 

  18                                                  2.21

 

 -----------------------------------------------------------

 

 [Table Continued]

 

 -----------------------------------------------------------------

 

                           Recovery periods in years

 

 Year  -----------------------------------------------------------

 

          18      19       20       22       24      25      26.5

 

 -----------------------------------------------------------------

 

   1     3.47%   3.29%   3.125%   2.841%   2.604%   2.5%    2.358%

 

   2     5.56    5.26    5.000    4.545    4.167    4.0     3.774

 

   3     5.56    5.26    5.000    4.545    4.167    4.0     3.774

 

   4     5.56    5.26    5.000    4.545    4.167    4.0     3.774

 

   5     5.55    5.26    5.000    4.546    4.167    4.0     3.774

 

   6     5.56    5.26    5.000    4.545    4.167    4.0     3.774

 

   7     5.55    5.26    5.000    4.546    4.167    4.0     3.774

 

   8     5.56    5.26    5.000    4.545    4.167    4.0     3.773

 

   9     5.55    5.27    5.000    4.546    4.167    4.0     3.774

 

  10     5.56    5.26    5.000    4.545    4.167    4.0     3.773

 

  11     5.55    5.27    5.000    4.546    4.166    4.0     3.774

 

  12     5.56    5.26    5.000    4.545    4.167    4.0     3.773

 

  13     5.55    5.27    5.000    4.546    4.166    4.0     3.774

 

  14     5.56    5.26    5.000    4.545    4.167    4.0     3.773

 

  15     5.55    5.27    5.000    4.546    4.166    4.0     3.774

 

  16     5.56    5.26    5.000    4.545    4.167    4.0     3.773

 

  17     5.55    5.27    5.000    4.546    4.166    4.0     3.774

 

  18     5.56    5.26    5.000    4.545    4.167    4.0     3.773

 

  19     2.08    5.27    5.000    4.546    4.166    4.0     3.774

 

  20             1.97    5.000    4.545    4.167    4.0     3.773

 

  21                     1.875    4.546    4.166    4.0     3.774

 

  22                              4.545    4.167    4.0     3.773

 

  23                              1.705    4.166    4.0     3.774

 

  24                                       4.167    4.0     3.773

 

  25                                       1.562    4.0     3.774

 

  26                                                1.5     3.773

 

  27                                                        3.302

 

  28

 

  29

 

  30

 

  31

 

  32

 

  33

 

  34

 

  35

 

  36

 

  37

 

  38

 

  39

 

  40

 

  41

 

  42

 

  43

 

  44

 

  45

 

  46

 

 47-50

 

  51

 

 -----------------------------------------------------------------

 

 [Table Continued]

 

 -----------------------------------------------------------

 

                   Recovery periods in years

 

 Year  -----------------------------------------------------

 

          28         30       35       40       45      50

 

 -----------------------------------------------------------

 

   1     2.232%   2.083%   1.786%   1.563%   1.389%   1.25%

 

   2     3.571    3.333    2.857    2.500    2.222    2.00

 

   3     3.571    3.333    2.857    2.500    2.222    2.00

 

   4     3.571    3.333    2.857    2.500    2.222    2.00

 

   5     3.571    3.333    2.857    2.500    2.222    2.00

 

   6     3.572    3.333    2.857    2.500    2.222    2.00

 

   7     3.571    3.333    2.857    2.500    2.222    2.00

 

   8     3.572    3.333    2.857    2.500    2.222    2.00

 

   9     3.571    3.333    2.857    2.500    2.222    2.00

 

  10     3.572    3.333    2.857    2.500    2.222    2.00

 

  11     3.571    3.333    2.857    2.500    2.222    2.00

 

  12     3.572    3.334    2.857    2.500    2.222    2.00

 

  13     3.571    3.333    2.857    2.500    2.222    2.00

 

  14     3.572    3.334    2.857    2.500    2.222    2.00

 

  15     3.571    3.333    2.857    2.500    2.222    2.00

 

  16     3.572    3.334    2.857    2.500    2.222    2.00

 

  17     3.571    3.333    2.857    2.500    2.222    2.00

 

  18     3.572    3.334    2.857    2.500    2.222    2.00

 

  19     3.571    3.333    2.857    2.500    2.222    2.00

 

  20     3.572    3.334    2.857    2.500    2.222    2.00

 

  21     3.571    3.333    2.857    2.500    2.222    2.00

 

  22     3.572    3.334    2.857    2.500    2.222    2.00

 

  23     3.571    3.333    2.857    2.500    2.222    2.00

 

  24     3.572    3.334    2.857    2.500    2.222    2.00

 

  25     3.571    3.333    2.857    2.500    2.222    2.00

 

  26     3.572    3.334    2.857    2.500    2.222    2.00

 

  27     3.571    3.333    2.857    2.500    2.223    2.00

 

  28     3.572    3.334    2.858    2.500    2.222    2.00

 

  29     1.339    3.333    2.857    2.500    2.223    2.00

 

  30              3.334    2.858    2.500    2.222    2.00

 

  31              1.250    2.857    2.500    2.223    2.00

 

  32                       2.858    2.500    2.222    2.00

 

  33                       2.857    2.500    2.223    2.00

 

  34                       2.858    2.500    2.222    2.00

 

  35                       2.857    2.500    2.223    2.00

 

  36                       1.072    2.500    2.222    2.00

 

  37                                2.500    2.223    2.00

 

  38                                2.500    2.222    2.00

 

  39                                2.500    2.223    2.00

 

  40                                2.500    2.222    2.00

 

  41                                0.937    2.223    2.00

 

  42                                         2.222    2.00

 

  43                                         2.223    2.00

 

  44                                         2.222    2.00

 

  45                                         2.223    2.00

 

  46                                         0.833    2.00

 

 47-50                                                2.00

 

  51                                                  0.75

 

 -----------------------------------------------------------

 

 

Table A-11. Straight Line Method Mid-Quarter Convention Placed in Service in Third Quarter

 -----------------------------------------------------------------

 

                         Recovery periods in years

 

 Year  -----------------------------------------------------------

 

         2.5       3      3.5      4      5        6       6.5

 

 -----------------------------------------------------------------

 

   1    15.0%   12.50%  10.71%   9.38%    7.5%    6.25%   5.77%

 

   2    40.0    33.33   28.57   25.00    20.0    16.67   15.38

 

   3    40.0    33.34   28.57   25.00    20.0    16.67   15.39

 

   4     5.0    20.83   28.58   25.00    20.0    16.66   15.38

 

   5                     3.57   15.62    20.0    16.67   15.39

 

   6                                     12.5    16.66   15.38

 

   7                                             10.42   15.39

 

   8                                                      1.92

 

   9

 

  10

 

  11

 

 -----------------------------------------------------------------

 

 [Table Continued]

 

 -----------------------------------------------------

 

                  Recovery periods in years

 

 Year  ----------------------------------------------

 

           7      7.5     8       8.5     9       9.5

 

 -----------------------------------------------------

 

   1     5.36%   5.00%   4.69%   4.41%   4.17%   3.95%

 

   2    14.29   13.33   12.50   11.76   11.11   10.53

 

   3    14.28   13.33   12.50   11.77   11.11   10.53

 

   4    14.29   13.33   12.50   11.76   11.11   10.52

 

   5    14.28   13.34   12.50   11.77   11.11   10.53

 

   6    14.29   13.33   12.50   11.76   11.11   10.52

 

   7    14.28   13.34   12.50   11.77   11.11   10.53

 

   8     8.93   13.33   12.50   11.76   11.11   10.52

 

   9             1.67    7.81   11.77   11.11   10.53

 

  10                             1.47    6.95   10.52

 

  11                                             1.32

 

 ----------------------------------------------------

 

 [Table Continued]

 

 ----------------------------------------------------------------

 

                        Recovery periods in years

 

 Year  ----------------------------------------------------------

 

          10      10.5    11     11.5      12     12.5     13

 

 ----------------------------------------------------------------

 

   1     3.75%   3.57%   3.41%   3.26%    3.13%   3.0%    2.88%

 

   2    10.00    9.52    9.09    8.70     8.33    8.0     7.69

 

   3    10.00    9.52    9.09    8.70     8.33    8.0     7.69

 

   4    10.00    9.52    9.09    8.69     8.33    8.0     7.69

 

   5    10.00    9.53    9.09    8.70     8.33    8.0     7.69

 

   6    10.00    9.52    9.09    8.69     8.33    8.0     7.69

 

   7    10.00    9.53    9.09    8.70     8.34    8.0     7.69

 

   8    10.00    9.52    9.09    8.69     8.33    8.0     7.70

 

   9    10.00    9.53    9.09    8.70     8.34    8.0     7.69

 

  10    10.00    9.52    9.09    8.69     8.33    8.0     7.70

 

  11     6.25    9.53    9.10    8.70     8.34    8.0     7.69

 

  12             1.19    5.68    8.69     8.33    8.0     7.70

 

  13                             1.09     5.21    8.0     7.69

 

  14                                              1.0     4.81

 

  15

 

  16

 

  17

 

  18

 

 ----------------------------------------------------------------

 

 [Table Continued]

 

 -----------------------------------------------------

 

                 Recovery periods in years

 

 Year  -----------------------------------------------

 

         13.5     14      15      16     16.5     17

 

 -----------------------------------------------------

 

   1     2.78%   2.68%   2.50%   2.34%   2.27%   2.21%

 

   2     7.41    7.14    6.67    6.25    6.06    5.88

 

   3     7.41    7.14    6.67    6.25    6.06    5.88

 

   4     7.41    7.14    6.67    6.25    6.06    5.88

 

   5     7.41    7.14    6.67    6.25    6.06    5.88

 

   6     7.41    7.14    6.67    6.25    6.06    5.88

 

   7     7.41    7.14    6.66    6.25    6.06    5.88

 

   8     7.40    7.14    6.67    6.25    6.06    5.88

 

   9     7.41    7.15    6.66    6.25    6.06    5.88

 

  10     7.40    7.14    6.67    6.25    6.06    5.88

 

  11     7.41    7.15    6.66    6.25    6.06    5.88

 

  12     7.40    7.14    6.67    6.25    6.06    5.89

 

  13     7.41    7.15    6.66    6.25    6.06    5.88

 

  14     7.40    7.14    6.67    6.25    6.06    5.89

 

  15     0.93    4.47    6.66    6.25    6.06    5.88

 

  16                     4.17    6.25    6.07    5.89

 

  17                             3.91    6.06    5.88

 

  18                                     0.76    3.68

 

 -----------------------------------------------------

 

 [Table Continued]

 

 ----------------------------------------------------------------

 

                         Recovery periods in years

 

 Year  ----------------------------------------------------------

 

          18      19       20      22       24     25      26.5

 

 ----------------------------------------------------------------

 

   1     2.08%   1.97%   1.875%  1.705%   1.563%  1.5%    1.415%

 

   2     5.56    5.26    5.000   4.545    4.167   4.0     3.774

 

   3     5.56    5.26    5.000   4.545    4.167   4.0     3.774

 

   4     5.56    5.26    5.000   4.545    4.167   4.0     3.774

 

   5     5.55    5.26    5.000   4.546    4.167   4.0     3.774

 

   6     5.56    5.26    5.000   4.545    4.167   4.0     3.774

 

   7     5.55    5.26    5.000   4.546    4.167   4.0     3.773

 

   8     5.56    5.26    5.000   4.545    4.167   4.0     3.774

 

   9     5.55    5.27    5.000   4.546    4.166   4.0     3.773

 

  10     5.56    5.26    5.000   4.545    4.167   4.0     3.774

 

  11     5.55    5.27    5.000   4.546    4.166   4.0     3.773

 

  12     5.56    5.26    5.000   4.545    4.167   4.0     3.774

 

  13     5.55    5.27    5.000   4.546    4.166   4.0     3.773

 

  14     5.56    5.26    5.000   4.545    4.167   4.0     3.774

 

  15     5.55    5.27    5.000   4.546    4.166   4.0     3.773

 

  16     5.56    5.26    5.000   4.545    4.167   4.0     3.774

 

  17     5.55    5.27    5.000   4.546    4.166   4.0     3.773

 

  18     5.56    5.26    5.000   4.545    4.167   4.0     3.774

 

  19     3.47    5.27    5.000   4.546    4.166   4.0     3.773

 

  20             3.29    5.000   4.545    4.167   4.0     3.774

 

  21                     3.125   4.546    4.166   4.0     3.773

 

  22                             4.545    4.167   4.0     3.774

 

  23                             2.841    4.166   4.0     3.773

 

  24                                      4.167   4.0     3.774

 

  25                                      2.604   4.0     3.773

 

  26                                              2.5     3.774

 

  27                                                      3.773

 

  28                                                      0.472

 

  29

 

  30

 

  31

 

  32

 

  33

 

  34

 

  35

 

  36

 

  37

 

  38

 

  39

 

  40

 

  41

 

  42

 

  43

 

  44

 

  45

 

  46

 

 47-50

 

  51

 

 ----------------------------------------------------------------

 

 [Table Continued]

 

 -----------------------------------------------------

 

                Recovery periods in years

 

 Year  -----------------------------------------------

 

          28       30      35      40      45     50

 

 -----------------------------------------------------

 

   1     1.339%  1.250%  1.071%  0.938%  0.833%  0.75%

 

   2     3.571   3.333   2.857   2.500   2.222   2.00

 

   3     3.571   3.333   2.857   2.500   2.222   2.00

 

   4     3.571   3.333   2.857   2.500   2.222   2.00

 

   5     3.571   3.333   2.857   2.500   2.222   2.00

 

   6     3.572   3.333   2.857   2.500   2.222   2.00

 

   7     3.571   3.333   2.857   2.500   2.222   2.00

 

   8     3.572   3.333   2.857   2.500   2.222   2.00

 

   9     3.571   3.333   2.857   2.500   2.222   2.00

 

  10     3.572   3.333   2.857   2.500   2.222   2.00

 

  11     3.571   3.333   2.857   2.500   2.222   2.00

 

  12     3.572   3.334   2.857   2.500   2.222   2.00

 

  13     3.571   3.333   2.857   2.500   2.222   2.00

 

  14     3.572   3.334   2.857   2.500   2.222   2.00

 

  15     3.571   3.333   2.857   2.500   2.222   2.00

 

  16     3.572   3.334   2.857   2.500   2.222   2.00

 

  17     3.571   3.333   2.857   2.500   2.222   2.00

 

  18     3.572   3.334   2.857   2.500   2.222   2.00

 

  19     3.571   3.333   2.857   2.500   2.222   2.00

 

  20     3.572   3.334   2.857   2.500   2.222   2.00

 

  21     3.571   3.333   2.857   2.500   2.222   2.00

 

  22     3.572   3.334   2.857   2.500   2.222   2.00

 

  23     3.571   3.333   2.857   2.500   2.222   2.00

 

  24     3.572   3.334   2.857   2.500   2.222   2.00

 

  25     3.571   3.333   2.857   2.500   2.222   2.00

 

  26     3.572   3.334   2.858   2.500   2.222   2.00

 

  27     3.571   3.333   2.857   2.500   2.223   2.00

 

  28     3.572   3.334   2.858   2.500   2.222   2.00

 

  29     2.232   3.333   2.857   2.500   2.223   2.00

 

  30             3.334   2.858   2.500   2.222   2.00

 

  31             2.083   2.857   2.500   2.223   2.00

 

  32                     2.858   2.500   2.222   2.00

 

  33                     2.857   2.500   2.223   2.00

 

  34                     2.858   2.500   2.222   2.00

 

  35                     2.857   2.500   2.223   2.00

 

  36                     1.786   2.500   2.222   2.00

 

  37                             2.500   2.223   2.00

 

  38                             2.500   2.222   2.00

 

  39                             2.500   2.223   2.00

 

  40                             2.500   2.222   2.00

 

  41                             1.562   2.223   2.00

 

  42                                     2.222   2.00

 

  43                                     2.223   2.00

 

  44                                     2.222   2.00

 

  45                                     2.223   2.00

 

  46                                     1.389   2.00

 

 47-50                                           2.00

 

  51                                             1.25

 

 ----------------------------------------------------

 

 

Table A-12. Straight Line Method Mid-Quarter Convention Placed in Service in Fourth Quarter

 ----------------------------------------------------------------

 

                          Recovery periods in years

 

 Year  ----------------------------------------------------------

 

         2.5      3      3.5      4        5        6      6.5

 

 ----------------------------------------------------------------

 

   1     5.0%    4.17%   3.57%   3.13%    2.5%    2.08%   1.92%

 

   2    40.0    33.33   28.57   25.00    20.0    16.67   15.39

 

   3    40.0    33.33   28.57   25.00    20.0    16.67   15.38

 

   4    15.0    29.17   28.57   25.00    20.0    16.67   15.39

 

   5                    10.72   21.87    20.0    16.66   15.38

 

   6                                     17.5    16.67   15.39

 

   7                                             14.58   15.38

 

   8                                                      5.77

 

   9

 

  10

 

  11

 

 ----------------------------------------------------------------

 

 [Table Continued]

 

 ----------------------------------------------------

 

              Recovery periods in years

 

 Year  ----------------------------------------------

 

           7     7.5      8      8.5     9      9.5

 

 ----------------------------------------------------

 

   1     1.79%   1.67%   1.56%   1.47%   1.39%   1.32%

 

   2    14.29   13.33   12.50   11.76   11.11   10.53

 

   3    14.28   13.33   12.50   11.77   11.11   10.53

 

   4    14.29   13.33   12.50   11.76   11.11   10.52

 

   5    14.28   13.33   12.50   11.77   11.11   10.53

 

   6    14.29   13.34   12.50   11.76   11.11   10.52

 

   7    14.28   13.33   12.50   11.77   11.11   10.53

 

   8    12.50   13.34   12.50   11.76   11.11   10.52

 

   9             5.00   10.94   11.77   11.11   10.53

 

  10                             4.41    9.73   10.52

 

  11                                             3.95

 

 ----------------------------------------------------

 

 [Table Continued]

 

 ----------------------------------------------------------------

 

                      Recovery periods in years

 

 Year  ----------------------------------------------------------

 

          10     10.5     11      11.5     12    12.5      13

 

 ----------------------------------------------------------------

 

   1     1.25%   1.19%   1.14%   1.09%    1.04%   1.0%    0.96%

 

   2    10.00    9.52    9.09    8.70     8.33    8.0     7.69

 

   3    10.00    9.52    9.09    8.69     8.33    8.0     7.69

 

   4    10.00    9.52    9.09    8.70     8.33    8.0     7.69

 

   5    10.00    9.53    9.09    8.69     8.33    8.0     7.69

 

   6    10.00    9.52    9.09    8.70     8.34    8.0     7.69

 

   7    10.00    9.53    9.09    8.69     8.33    8.0     7.69

 

   8    10.00    9.52    9.09    8.70     8.34    8.0     7.69

 

   9    10.00    9.53    9.09    8.69     8.33    8.0     7.70

 

  10    10.00    9.52    9.09    8.70     8.34    8.0     7.69

 

  11     8.75    9.53    9.09    8.69     8.33    8.0     7.70

 

  12             3.57    7.96    8.70     8.34    8.0     7.69

 

  13                             3.26     7.29    8.0     7.70

 

  14                                              3.0     6.73

 

  15

 

  16

 

  17

 

  18

 

 ----------------------------------------------------------------

 

 [Table Continued]

 

 ----------------------------------------------------

 

              Recovery periods in years

 

 Year  ----------------------------------------------

 

         13.5     14      15      16     16.5     17

 

 ----------------------------------------------------

 

   1     0.93%   0.89%   0.83%   0.78%   0.76%   0.74%

 

   2     7.41    7.14    6.67    6.25    6.06    5.88

 

   3     7.41    7.14    6.67    6.25    6.06    5.88

 

   4     7.41    7.14    6.67    6.25    6.06    5.88

 

   5     7.41    7.14    6.67    6.25    6.06    5.88

 

   6     7.41    7.14    6.67    6.25    6.06    5.88

 

   7     7.41    7.14    6.67    6.25    6.06    5.88

 

   8     7.40    7.15    6.66    6.25    6.06    5.88

 

   9     7.41    7.14    6.67    6.25    6.06    5.88

 

  10     7.40    7.15    6.66    6.25    6.06    5.88

 

  11     7.41    7.14    6.67    6.25    6.06    5.88

 

  12     7.40    7.15    6.66    6.25    6.06    5.89

 

  13     7.41    7.14    6.67    6.25    6.06    5.88

 

  14     7.40    7.15    6.66    6.25    6.06    5.89

 

  15     2.78    6.25    6.67    6.25    6.06    5.88

 

  16                     5.83    6.25    6.06    5.89

 

  17                             5.47    6.07    5.88

 

  18                                     2.27    5.15

 

 ----------------------------------------------------

 

 [Table Continued]

 

 -----------------------------------------------------------------

 

                        Recovery periods in years

 

 Year  -----------------------------------------------------------

 

          18      19       20      22       24     25      26.5

 

 -----------------------------------------------------------------

 

   1     0.69%   0.66%   0.625%  0.568%   0.521%  0.5%    0.472%

 

   2     5.56    5.26    5.000   4.545    4.167   4.0     3.774

 

   3     5.56    5.26    5.000   4.545    4.167   4.0     3.774

 

   4     5.56    5.26    5.000   4.546    4.167   4.0     3.774

 

   5     5.55    5.26    5.000   4.545    4.167   4.0     3.774

 

   6     5.56    5.26    5.000   4.546    4.167   4.0     3.773

 

   7     5.55    5.26    5.000   4.545    4.167   4.0     3.774

 

   8     5.56    5.26    5.000   4.546    4.167   4.0     3.773

 

   9     5.55    5.26    5.000   4.545    4.167   4.0     3.774

 

  10     5.56    5.27    5.000   4.546    4.166   4.0     3.773

 

  11     5.55    5.26    5.000   4.545    4.167   4.0     3.774

 

  12     5.56    5.27    5.000   4.546    4.166   4.0     3.773

 

  13     5.55    5.26    5.000   4.545    4.167   4.0     3.774

 

  14     5.56    5.27    5.000   4.546    4.166   4.0     3.773

 

  15     5.55    5.26    5.000   4.545    4.167   4.0     3.774

 

  16     5.56    5.27    5.000   4.546    4.166   4.0     3.773

 

  17     5.55    5.26    5.000   4.545    4.167   4.0     3.774

 

  18     5.56    5.27    5.000   4.546    4.166   4.0     3.773

 

  19     4.86    5.26    5.000   4.545    4.167   4.0     3.774

 

  20             4.61    5.000   4.546    4.166   4.0     3.773

 

  21                     4.375   4.545    4.167   4.0     3.774

 

  22                             4.546    4.166   4.0     3.773

 

  23                             3.977    4.167   4.0     3.774

 

  24                                      4.166   4.0     3.773

 

  25                                      3.646   4.0     3.774

 

  26                                              3.5     3.773

 

  27                                                      3.774

 

  28                                                      1.415

 

  29

 

  30

 

  31

 

  32

 

  33

 

  34

 

  35

 

  36

 

  37

 

  38

 

  39

 

  40

 

  41

 

  42

 

  43

 

  44

 

  45

 

  46

 

 47-50

 

  51

 

 -----------------------------------------------------------------

 

 [Table Continued]

 

 -----------------------------------------------------

 

                Recovery periods in years

 

 Year  -----------------------------------------------

 

          28       30      35      40      45      50

 

 -----------------------------------------------------

 

   1     0.446%  0.417%  0.357%  0.313%  0.278%  0.25%

 

   2     3.571   3.333   2.857   2.500   2.222   2.00

 

   3     3.571   3.333   2.857   2.500   2.222   2.00

 

   4     3.571   3.333   2.857   2.500   2.222   2.00

 

   5     3.571   3.333   2.857   2.500   2.222   2.00

 

   6     3.572   3.333   2.857   2.500   2.222   2.00

 

   7     3.571   3.333   2.857   2.500   2.222   2.00

 

   8     3.572   3.333   2.857   2.500   2.222   2.00

 

   9     3.571   3.333   2.857   2.500   2.222   2.00

 

  10     3.572   3.333   2.857   2.500   2.222   2.00

 

  11     3.571   3.333   2.857   2.500   2.222   2.00

 

  12     3.572   3.333   2.857   2.500   2.222   2.00

 

  13     3.571   3.334   2.857   2.500   2.222   2.00

 

  14     3.572   3.333   2.857   2.500   2.222   2.00

 

  15     3.571   3.334   2.857   2.500   2.222   2.00

 

  16     3.572   3.333   2.857   2.500   2.222   2.00

 

  17     3.571   3.334   2.857   2.500   2.222   2.00

 

  18     3.572   3.333   2.857   2.500   2.222   2.00

 

  19     3.571   3.334   2.857   2.500   2.222   2.00

 

  20     3.572   3.333   2.857   2.500   2.222   2.00

 

  21     3.571   3.334   2.857   2.500   2.222   2.00

 

  22     3.572   3.333   2.857   2.500   2.222   2.00

 

  23     3.571   3.334   2.857   2.500   2.222   2.00

 

  24     3.572   3.333   2.857   2.500   2.222   2.00

 

  25     3.571   3.334   2.857   2.500   2.222   2.00

 

  26     3.572   3.333   2.857   2.500   2.222   2.00

 

  27     3.571   3.334   2.858   2.500   2.222   2.00

 

  28     3.572   3.333   2.857   2.500   2.223   2.00

 

  29     3.125   3.334   2.858   2.500   2.222   2.00

 

  30             3.333   2.857   2.500   2.223   2.00

 

  31             2.917   2.858   2.500   2.222   2.00

 

  32                     2.857   2.500   2.223   2.00

 

  33                     2.858   2.500   2.222   2.00

 

  34                     2.857   2.500   2.223   2.00

 

  35                     2.858   2.500   2.222   2.00

 

  36                     2.500   2.500   2.223   2.00

 

  37                             2.500   2.222   2.00

 

  38                             2.500   2.223   2.00

 

  39                             2.500   2.222   2.00

 

  40                             2.500   2.223   2.00

 

  41                             2.187   2.222   2.00

 

  42                                     2.223   2.00

 

  43                                     2.222   2.00

 

  44                                     2.223   2.00

 

  45                                     2.222   2.00

 

  46                                     1.945   2.00

 

 47-50                                           2.00

 

  51                                             1.75

 

 -----------------------------------------------------

 

 

Table A-13. Straight Line Mid-Month Convention

 --------------------------------------------------------------

 

                     Month property placed in service

 

 Year  --------------------------------------------------------

 

          1        2       3      4       5       6       7

 

 --------------------------------------------------------------

 

   1    2.396%  2.188%  1.979%  1.771%  1.563%  1.354%  1.146%

 

  2-40  2.500   2.500   2.500   2.500   2.500   2.500   2.500

 

   41   0.104   0.312   0.521   0.729   0.937   1.146   1.354

 

 --------------------------------------------------------------

 

 [Table Continued]

 

 ---------------------------------------------

 

         Month property placed in service

 

 Year  ---------------------------------------

 

          8       9       10      11      12

 

 ---------------------------------------------

 

   1    0.938%  0.729%  0.521%  0.313%  0.104%

 

  2-40  2.500   2.500   2.500   2.500   2.500

 

   41   1.562   1.771   1.979   2.187   2.396

 

 ---------------------------------------------

 

 

Table A-14. 150% Declining Balance Method Half-Year Convention

 ----------------------------------------------------------------------

 

                         Recovery periods in years

 

 Year  ----------------------------------------------------------------

 

           2.5     3        3.5         4         5        6      6.5

 

 ----------------------------------------------------------------------

 

   1      30.0%   25.0%    21.43%    18.75%    15.00%   12.50%   11.54%

 

   2      42.0    37.5     33.67     30.47     25.50    21.88    20.41

 

   3      28.0    25.0     22.45     20.31     17.85    16.41    15.70

 

   4              12.5     22.45     20.31     16.66    14.06    13.09

 

   5                                 10.16     16.66    14.06    13.09

 

   6                                            8.33    14.06    13.09

 

   7                                                     7.03    13.08

 

   8

 

   9

 

  10

 

 ----------------------------------------------------------------------

 

 [Table Continued]

 

 -----------------------------------------------------------------

 

                    Recovery periods in years

 

 Year  -----------------------------------------------------------

 

             7      7.5        8       8.5         9       9.5

 

 -----------------------------------------------------------------

 

   1      10.71%   10.00%    9.38%     8.82%     8.33%     7.89%

 

   2      19.13    18.00    16.99     16.09     15.28     14.54

 

   3      15.03    14.40    13.81     13.25     12.73     12.25

 

   4      12.25    11.52    11.22     10.91     10.61     10.31

 

   5      12.25    11.52    10.80     10.19      9.65      9.17

 

   6      12.25    11.52    10.80     10.19      9.64      9.17

 

   7      12.25    11.52    10.80     10.18      9.65      9.17

 

   8       6.13    11.52    10.80     10.19      9.64      9.17

 

   9                         5.40     10.18      9.65      9.17

 

  10                                             4.82      9.16

 

 -----------------------------------------------------------------

 

 [Table Continued]

 

 --------------------------------------------------------------

 

                         Recovery periods in years

 

 Year  --------------------------------------------------------

 

            10     10.5      11       11.5       12      12.5

 

 --------------------------------------------------------------

 

   1       7.50%   7.14%    6.82%     6.52%     6.25%    6.00%

 

   2      13.88   13.27    12.71     12.19     11.72    11.28

 

   3      11.79   11.37    10.97     10.60     10.25     9.93

 

   4      10.02    9.75     9.48      9.22      8.97     8.73

 

   5       8.74    8.35     8.18      8.02      7.85     7.69

 

   6       8.74    8.35     7.98      7.64      7.33     7.05

 

   7       8.74    8.35     7.97      7.64      7.33     7.05

 

   8       8.74    8.35     7.98      7.63      7.33     7.05

 

   9       8.74    8.36     7.97      7.64      7.33     7.04

 

  10       8.74    8.35     7.98      7.63      7.33     7.05

 

  11       4.37    8.36     7.97      7.64      7.32     7.04

 

  12                        3.99      7.63      7.33     7.05

 

  13                                            3.66     7.04

 

  14

 

  15

 

  16

 

  17

 

  18

 

 --------------------------------------------------------------

 

 [Table Continued]

 

 ---------------------------------------------------------------------

 

                           Recovery periods in years

 

 Year  ---------------------------------------------------------------

 

            13      13.5      14       15        16       16.5    17

 

 ---------------------------------------------------------------------

 

   1      5.77%     5.56%    5.36%    5.00%     4.69%     4.55%  4.41%

 

   2     10.87     10.49    10.14     9.50      8.94      8.68   8.43

 

   3      9.62      9.33     9.05     8.55      8.10      7.89   7.69

 

   4      8.51      8.29     8.08     7.70      7.34      7.17   7.01

 

   5      7.53      7.37     7.22     6.93      6.65      6.52   6.39

 

   6      6.79      6.55     6.44     6.23      6.03      5.93   5.83

 

   7      6.79      6.55     6.32     5.90      5.55      5.39   5.32

 

   8      6.79      6.55     6.32     5.90      5.55      5.39   5.23

 

   9      6.79      6.55     6.32     5.91      5.55      5.39   5.23

 

  10      6.79      6.55     6.32     5.90      5.55      5.39   5.23

 

  11      6.79      6.55     6.32     5.91      5.55      5.39   5.23

 

  12      6.78      6.55     6.32     5.90      5.55      5.39   5.23

 

  13      6.79      6.56     6.32     5.91      5.54      5.38   5.23

 

  14      3.39      6.55     6.31     5.90      5.55      5.39   5.23

 

  15                         3.16     5.91      5.54      5.38   5.23

 

  16                                  2.95      5.55      5.39   5.23

 

  17                                            2.77      5.38   5.23

 

  18                                                             2.62

 

 ---------------------------------------------------------------------

 

 [Table Continued]

 

 --------------------------------------------------------------

 

                      Recovery periods in years

 

 Year  --------------------------------------------------------

 

            18      19        20       22        24       25

 

 --------------------------------------------------------------

 

   1       4.17%   3.95%    3.750%    3.409%    3.125%   3.000%

 

   2       7.99    7.58     7.219     6.586     6.055    5.820

 

   3       7.32    6.98     6.677     6.137     5.676    5.471

 

   4       6.71    6.43     6.177     5.718     5.322    5.143

 

   5       6.15    5.93     5.713     5.328     4.989    4.834

 

   6       5.64    5.46     5.285     4.965     4.677    4.544

 

   7       5.17    5.03     4.888     4.627     4.385    4.271

 

   8       4.94    4.69     4.522     4.311     4.111    4.015

 

   9       4.94    4.69     4.462     4.063     3.854    3.774

 

  10       4.94    4.69     4.461     4.063     3.729    3.584

 

  11       4.94    4.69     4.462     4.063     3.729    3.583

 

  12       4.95    4.69     4.461     4.063     3.729    3.584

 

  13       4.94    4.69     4.462     4.064     3.730    3.583

 

  14       4.95    4.69     4.461     4.063     3.729    3.584

 

  15       4.94    4.69     4.462     4.064     3.730    3.583

 

  16       4.95    4.69     4.461     4.063     3.729    3.584

 

  17       4.94    4.69     4.462     4.064     3.730    3.583

 

  18       4.95    4.70     4.461     4.063     3.729    3.584

 

  19       2.47    4.69     4.462     4.064     3.730    3.583

 

  20               2.35     4.461     4.063     3.729    3.584

 

  21                        2.231     4.064     3.730    3.583

 

  22                                  4.063     3.729    3.584

 

  23                                  2.032     3.730    3.583

 

  24                                            3.729    3.584

 

  25                                            1.865    3.583

 

  26                                                     1.792

 

  27

 

  28

 

  29

 

  30

 

  31

 

  32

 

  33

 

  34

 

  35

 

  36

 

  37

 

  38

 

  39

 

  40

 

  41

 

  42

 

  43

 

  44

 

  45

 

  46

 

  47

 

  48

 

  49

 

  50

 

  51

 

 --------------------------------------------------------------

 

 [Table Continued]

 

 ---------------------------------------------------------------------

 

                        Recovery periods in years

 

 Year  ---------------------------------------------------------------

 

        26.5      28       30       35        40        45       50

 

 ---------------------------------------------------------------------

 

   1   2.830%    2.679%   2.500%   2.143%    1.875%    1.667%   1.500%

 

   2   5.500     5.214    4.875    4.194     3.680     3.278    2.955

 

   3   5.189     4.934    4.631    4.014     3.542     3.169    2.866

 

   4   4.895     4.670    4.400    3.842     3.409     3.063    2.780

 

   5   4.618     4.420    4.180    3.677     3.281     2.961    2.697

 

   6   4.357     4.183    3.971    3.520     3.158     2.862    2.616

 

   7   4.110     3.959    3.772    3.369     3.040     2.767    2.538

 

   8   3.877     3.747    3.584    3.225     2.926     2.674    2.461

 

   9   3.658     3.546    3.404    3.086     2.816     2.585    2.388

 

  10   3.451     3.356    3.234    2.954     2.710     2.499    2.316

 

  11   3.383     3.205    3.072    2.828     2.609     2.416    2.246

 

  12   3.383     3.205    2.994    2.706     2.511     2.335    2.179

 

  13   3.383     3.205    2.994    2.590     2.417     2.257    2.114

 

  14   3.383     3.205    2.994    2.571     2.326     2.182    2.050

 

  15   3.383     3.205    2.994    2.571     2.253     2.110    1.989

 

  16   3.383     3.205    2.994    2.571     2.253     2.039    1.929

 

  17   3.383     3.205    2.994    2.571     2.253     2.005    1.871

 

  18   3.383     3.205    2.994    2.571     2.253     2.005    1.815

 

  19   3.383     3.205    2.994    2.571     2.253     2.005    1.806

 

  20   3.384     3.205    2.993    2.571     2.253     2.005    1.806

 

  21   3.383     3.205    2.994    2.571     2.253     2.005    1.806

 

  22   3.384     3.205    2.993    2.571     2.253     2.005    1.806

 

  23   3.383     3.205    2.994    2.571     2.253     2.005    1.806

 

  24   3.384     3.205    2.993    2.571     2.253     2.004    1.806

 

  25   3.383     3.205    2.994    2.571     2.253     2.005    1.806

 

  26   3.384     3.205    2.993    2.571     2.253     2.004    1.806

 

  27   3.383     3.205    2.994    2.571     2.253     2.005    1.806

 

  28             3.205    2.993    2.572     2.253     2.004    1.806

 

  29             1.602    2.994    2.571     2.253     2.005    1.806

 

  30                      2.993    2.572     2.253     2.004    1.806

 

  31                      1.497    2.571     2.253     2.005    1.806

 

  32                               2.572     2.253     2.004    1.806

 

  33                               2.571     2.252     2.005    1.806

 

  34                               2.572     2.253     2.004    1.806

 

  35                               2.571     2.252     2.005    1.806

 

  36                               1.286     2.253     2.004    1.806

 

  37                                         2.252     2.005    1.806

 

  38                                         2.253     2.004    1.806

 

  39                                         2.252     2.005    1.806

 

  40                                         2.253     2.004    1.806

 

  41                                         1.126     2.005    1.806

 

  42                                                   2.004    1.805

 

  43                                                   2.005    1.806

 

  44                                                   2.004    1.805

 

  45                                                   2.005    1.806

 

  46                                                   1.002    1.805

 

  47                                                            1.806

 

  48                                                            1.805

 

  49                                                            1.806

 

  50                                                            1.805

 

  51                                                            0.903

 

 ---------------------------------------------------------------------

 

 

Table A-15. 150% Declining Balance Method Mid-Quarter Convention Property Placed in Service in First Quarter

 -----------------------------------------------------------------

 

                        Recovery periods in years

 

 Year  -----------------------------------------------------------

 

        2.5      3      3.5      4         5        6      6.5

 

 -----------------------------------------------------------------

 

   1   52.50%  43.75%  37.50%   32.81%   26.25%   21.88%  20.19%

 

   2   29.23   28.13   26.79    25.20    22.13    19.53   18.42

 

   3   18.27   25.00   21.98    19.76    16.52    14.65   14.17

 

   4            3.12   13.73    19.76    16.52    14.06   13.03

 

   5                             2.47    16.52    14.06   13.02

 

   6                                      2.06    14.06   13.03

 

   7                                               1.76    8.14

 

   8

 

   9

 

  10

 

 -----------------------------------------------------------------

 

 [Table Continued]

 

 ----------------------------------------------------------

 

                    Recovery periods in years

 

 Year  ----------------------------------------------------

 

          7      7.5       8       8.5       9       9.5

 

 ----------------------------------------------------------

 

   1   18.75%   17.50%   16.41%   15.44%   14.58%   13.82%

 

   2   17.41    16.50    15.67    14.92    14.24    13.61

 

   3   13.68    13.20    12.74    12.29    11.86    11.46

 

   4   12.16    11.42    10.77    10.20     9.89     9.65

 

   5   12.16    11.42    10.77    10.19     9.64     9.15

 

   6   12.16    11.41    10.76    10.20     9.65     9.15

 

   7   12.16    11.42    10.77    10.19     9.64     9.15

 

   8    1.52     7.13    10.76    10.20     9.65     9.15

 

   9                      1.35     6.37     9.64     9.14

 

  10                                        1.21     5.72

 

 ----------------------------------------------------------

 

 [Table Continued]

 

 -----------------------------------------------------------------

 

                       Recovery periods in years

 

 Year  -----------------------------------------------------------

 

          10     10.5     11      11.5     12      12.5     13

 

 -----------------------------------------------------------------

 

   1   13.13%  12.50%  11.93%   11.41%   10.94%   10.50%  10.10%

 

   2   13.03   12.50   12.01    11.56    11.13    10.74   10.37

 

   3   11.08   10.71   10.37    10.05     9.74     9.45    9.18

 

   4    9.41    9.18    8.96     8.74     8.52     8.32    8.12

 

   5    8.71    8.32    7.96     7.64     7.46     7.32    7.18

 

   6    8.71    8.32    7.96     7.64     7.33     7.04    6.78

 

   7    8.71    8.32    7.96     7.64     7.33     7.04    6.77

 

   8    8.71    8.32    7.96     7.64     7.33     7.04    6.78

 

   9    8.71    8.32    7.96     7.64     7.33     7.04    6.77

 

  10    8.71    8.31    7.97     7.63     7.32     7.04    6.78

 

  11    1.09    5.20    7.96     7.64     7.33     7.04    6.77

 

  12                    1.00     4.77     7.32     7.03    6.78

 

  13                                      0.92     4.40    6.77

 

  14                                                       0.85

 

  15

 

  16

 

  17

 

  18

 

 -----------------------------------------------------------------

 

 [Table Continued]

 

 ----------------------------------------------------------

 

                Recovery periods in years

 

   Year   -------------------------------------------------

 

         13.5      14       15       16      16.5      17

 

 ----------------------------------------------------------

 

   1    9.72%    9.38%    8.75%    8.20%    7.95%    7.72%

 

   2   10.03     9.71     9.13     8.61     8.37     8.14

 

   3    8.92     8.67     8.21     7.80     7.61     7.42

 

   4    7.93     7.74     7.39     7.07     6.92     6.77

 

   5    7.04     6.91     6.65     6.41     6.29     6.17

 

   6    6.53     6.31     5.99     5.80     5.71     5.63

 

   7    6.54     6.31     5.90     5.54     5.38     5.23

 

   8    6.53     6.31     5.91     5.54     5.38     5.23

 

   9    6.54     6.31     5.90     5.54     5.38     5.23

 

  10    6.53     6.31     5.91     5.54     5.38     5.23

 

  11    6.54     6.31     5.90     5.54     5.38     5.23

 

  12    6.53     6.31     5.91     5.54     5.38     5.22

 

  13    6.54     6.32     5.90     5.54     5.38     5.23

 

  14    4.08     6.31     5.91     5.55     5.38     5.22

 

  15             0.79     5.90     5.54     5.38     5.23

 

  16                      0.74     5.55     5.37     5.22

 

  17                               0.69     3.36     5.23

 

  18                                                 0.65

 

 ----------------------------------------------------------

 

 [Table Continued]

 

 -------------------------------------------------------------------

 

                         Recovery periods in year

 

 Year  -------------------------------------------------------------

 

          18     19      20        22      24        25     26.5

 

 -------------------------------------------------------------------

 

   1    7.29%   6.91%   6.563%   5.966%   5.469%   5.250%  4.953%

 

   2    7.73    7.35    7.008    6.411    5.908    5.685   5.380

 

   3    7.08    6.77    6.482    5.974    5.539    5.344   5.075

 

   4    6.49    6.23    5.996    5.567    5.193    5.023   4.788

 

   5    5.95    5.74    5.546    5.187    4.868    4.722   4.517

 

   6    5.45    5.29    5.130    4.834    4.564    4.439   4.262

 

   7    5.00    4.87    4.746    4.504    4.279    4.172   4.020

 

   8    4.94    4.69    4.459    4.197    4.011    3.922   3.793

 

   9    4.95    4.69    4.459    4.061    3.761    3.687   3.578

 

  10    4.94    4.69    4.459    4.061    3.729    3.582   3.383

 

  11    4.95    4.69    4.459    4.061    3.729    3.582   3.384

 

  12    4.94    4.69    4.460    4.061    3.730    3.582   3.383

 

  13    4.95    4.69    4.459    4.061    3.729    3.582   3.384

 

  14    4.94    4.69    4.460    4.061    3.730    3.582   3.383

 

  15    4.95    4.68    4.459    4.061    3.729    3.582   3.384

 

  16    4.94    4.69    4.460    4.061    3.730    3.582   3.383

 

  17    4.95    4.68    4.459    4.061    3.729    3.582   3.384

 

  18    4.94    4.69    4.460    4.061    3.730    3.582   3.383

 

  19    0.62    4.68    4.459    4.061    3.729    3.581   3.384

 

  20            0.59    4.460    4.060    3.730    3.582   3.383

 

  21                    0.557    4.061    3.729    3.581   3.384

 

  22                             4.060    3.730    3.582   3.383

 

  23                             0.508    3.729    3.581   3.384

 

  24                                      3.730    3.582   3.383

 

  25                                      0.466    3.581   3.384

 

  26                                               0.448   3.383

 

  27                                                       2.115

 

  28

 

  29

 

  30

 

  31

 

  32

 

  33

 

  34

 

  35

 

  36

 

  37

 

  38

 

  39

 

  40

 

  41

 

  42

 

  43

 

  44

 

  45

 

  46

 

  47

 

  48

 

  49

 

  50

 

  51

 

 -------------------------------------------------------------------

 

 [Table Continued]

 

 ----------------------------------------------------------

 

                 Recovery periods in year

 

 Year  ----------------------------------------------------

 

          28       30       35       40      45        50

 

 ----------------------------------------------------------

 

   1    4.688%   4.375%   3.750%   3.281%   2.917%   2.625%

 

   2    5.106    4.781    4.125    3.627    3.236    2.921

 

   3    4.832    4.542    3.948    3.491    3.128    2.834

 

   4    4.574    4.315    3.779    3.360    3.024    2.749

 

   5    4.329    4.099    3.617    3.234    2.923    2.666

 

   6    4.097    3.894    3.462    3.113    2.826    2.586

 

   7    3.877    3.700    3.314    2.996    2.732    2.509

 

   8    3.669    3.515    3.172    2.884    2.640    2.433

 

   9    3.473    3.339    3.036    2.776    2.552    2.360

 

  10    3.287    3.172    2.906    2.671    2.467    2.290

 

  11    3.204    3.013    2.781    2.571    2.385    2.221

 

  12    3.204    2.994    2.662    2.475    2.306    2.154

 

  13    3.204    2.994    2.571    2.382    2.229    2.090

 

  14    3.204    2.994    2.571    2.293    2.154    2.027

 

  15    3.204    2.994    2.571    2.252    2.083    1.966

 

  16    3.204    2.994    2.571    2.252    2.013    1.907

 

  17    3.204    2.994    2.571    2.253    2.005    1.850

 

  18    3.204    2.994    2.571    2.252    2.005    1.806

 

  19    3.204    2.994    2.571    2.253    2.005    1.806

 

  20    3.204    2.994    2.571    2.252    2.005    1.806

 

  21    3.203    2.993    2.571    2.253    2.005    1.806

 

  22    3.204    2.994    2.571    2.252    2.005    1.806

 

  23    3.203    2.993    2.571    2.253    2.005    1.806

 

  24    3.204    2.994    2.570    2.252    2.005    1.806

 

  25    3.203    2.993    2.571    2.253    2.004    1.806

 

  26    3.204    2.994    2.570    2.252    2.005    1.806

 

  27    3.203    2.993    2.571    2.253    2.004    1.806

 

  28    3.204    2.994    2.570    2.252    2.005    1.805

 

  29    0.400    2.993    2.571    2.253    2.004    1.806

 

  30             2.994    2.570    2.252    2.005    1.805

 

  31             0.374    2.571    2.253    2.004    1.806

 

  32                      2.570    2.252    2.005    1.805

 

  33                      2.571    2.253    2.004    1.806

 

  34                      2.570    2.252    2.005    1.805

 

  35                      2.571    2.253    2.004    1.806

 

  36                      0.321    2.252    2.005    1.805

 

  37                               2.253    2.004    1.806

 

  38                               2.252    2.005    1.805

 

  39                               2.253    2.004    1.806

 

  40                               2.252    2.005    1.805

 

  41                               0.282    2.004    1.806

 

  42                                        2.005    1.805

 

  43                                        2.004    1.806

 

  44                                        2.005    1.805

 

  45                                        2.004    1.806

 

  46                                        0.251    1.805

 

  47                                                 1.806

 

  48                                                 1.805

 

  49                                                 1.806

 

  50                                                 1.805

 

  51                                                 0.226

 

 ---------------------------------------------------------

 

 

Table A-16. 150% Declining Balance Method Mid-Quarter Convention Property Placed in Service in Second Quarter

 ------------------------------------------------------------------

 

                        Recovery periods in years

 

 Year  ------------------------------------------------------------

 

         2.5      3      3.5       4        5        6      6.5

 

 ------------------------------------------------------------------

 

   1    37.50%  31.25%  26.79%   23.44%   18.75%   15.63%  14.42%

 

   2    37.50   34.38   31.38    28.71    24.38    21.09   19.75

 

   3    25.00   25.00   22.31    20.15    17.06    15.82   15.19

 

   4             9.37   19.52    20.15    16.76    14.06   13.07

 

   5                              7.55    16.76    14.06   13.07

 

   6                                       6.29    14.07   13.07

 

   7                                                5.27   11.43

 

   8

 

   9

 

  10

 

 ------------------------------------------------------------------

 

 [Table Continued]

 

 --------------------------------------------------------

 

                Recovery periods in years

 

 Year  --------------------------------------------------

 

        7       7.5       8       8.5       9       9.5

 

 --------------------------------------------------------

 

   1  13.39%   12.50%   11.72%   11.03%   10.42%    9.87%

 

   2  18.56    17.50    16.55    15.70    14.93    14.23

 

   3  14.58    14.00    13.45    12.93    12.44    11.98

 

   4  12.22    11.49    10.93    10.65    10.37    10.09

 

   5  12.22    11.49    10.82    10.19     9.64     9.16

 

   6  12.22    11.49    10.82    10.19     9.65     9.16

 

   7  12.23    11.48    10.83    10.19     9.64     9.16

 

   8   4.58    10.05    10.82    10.20     9.65     9.17

 

   9                     4.06     8.92     9.64     9.16

 

  10                                       3.62     8.02

 

 --------------------------------------------------------

 

 [Table Continued]

 

 ------------------------------------------------------------------

 

                       Recovery periods in years

 

 Year  ------------------------------------------------------------

 

          10     10.5     11      11.5      12      12.5     13

 

 ------------------------------------------------------------------

 

   1     9.38%   8.93%   8.52%    8.15%    7.81%    7.50%   7.21%

 

   2    13.59   13.01   12.47    11.98    11.52    11.10   10.71

 

   3    11.55   11.15   10.77    10.42    10.08     9.77    9.47

 

   4     9.82    9.56    9.31     9.06     8.82     8.60    8.38

 

   5     8.73    8.34    8.04     7.88     7.72     7.56    7.41

 

   6     8.73    8.34    7.98     7.64     7.33     7.04    6.78

 

   7     8.73    8.34    7.98     7.64     7.33     7.04    6.79

 

   8     8.73    8.34    7.98     7.64     7.33     7.05    6.78

 

   9     8.73    8.34    7.99     7.64     7.33     7.04    6.79

 

  10     8.73    8.35    7.98     7.63     7.33     7.05    6.78

 

  11     3.28    7.30    7.99     7.64     7.33     7.04    6.79

 

  12                     2.99     6.68     7.32     7.05    6.78

 

  13                                       2.75     6.16    6.79

 

  14                                                        2.54

 

  15

 

  16

 

  17

 

  18

 

 ---------------------------------------------------------------------

 

 [Table Continued]

 

 --------------------------------------------------------

 

                Recovery periods in years

 

 Year  --------------------------------------------------

 

       13.5      14       15       16      16.5      17

 

 --------------------------------------------------------

 

   1   6.94%    6.70%    6.25%    5.86%    5.68%    5.51%

 

   2  10.34    10.00     9.38     8.83     8.57     8.34

 

   3   9.19     8.92     8.44     8.00     7.80     7.60

 

   4   8.17     7.97     7.59     7.25     7.09     6.93

 

   5   7.26     7.12     6.83     6.57     6.44     6.32

 

   6   6.55     6.35     6.15     5.95     5.86     5.76

 

   7   6.55     6.32     5.91     5.55     5.38     5.25

 

   8   6.55     6.32     5.90     5.55     5.39     5.23

 

   9   6.54     6.32     5.91     5.55     5.38     5.23

 

  10   6.55     6.32     5.90     5.54     5.39     5.23

 

  11   6.54     6.32     5.91     5.55     5.38     5.23

 

  12   6.55     6.32     5.90     5.54     5.39     5.23

 

  13   6.54     6.32     5.91     5.55     5.38     5.24

 

  14   5.73     6.33     5.90     5.54     5.39     5.23

 

  15            2.37     5.91     5.55     5.38     5.24

 

  16                     2.21     5.54     5.39     5.23

 

  17                              2.08     4.71     5.24

 

  18                                                1.96

 

 --------------------------------------------------------

 

 [Table Continued]

 

 --------------------------------------------------------------------

 

                       Recovery periods in years

 

 Year  --------------------------------------------------------------

 

          18      19       20       22       24       25     26.5

 

 --------------------------------------------------------------------

 

   1     5.21%   4.93%   4.688%   4.261%   3.906%   3.750%  3.538%

 

   2     7.90    7.51    7.148    6.528    6.006    5.775   5.460

 

   3     7.24    6.91    6.612    6.083    5.631    5.429   5.151

 

   4     6.64    6.37    6.116    5.668    5.279    5.103   4.859

 

   5     6.08    5.86    5.658    5.281    4.949    4.797   4.584

 

   6     5.58    5.40    5.233    4.921    4.639    4.509   4.325

 

   7     5.11    4.98    4.841    4.586    4.349    4.238   4.080

 

   8     4.94    4.69    4.478    4.273    4.078    3.984   3.849

 

   9     4.94    4.69    4.463    4.063    3.823    3.745   3.631

 

  10     4.95    4.69    4.463    4.063    3.729    3.583   3.426

 

  11     4.94    4.69    4.463    4.062    3.729    3.583   3.384

 

  12     4.95    4.69    4.463    4.063    3.729    3.583   3.383

 

  13     4.94    4.69    4.463    4.062    3.730    3.583   3.384

 

  14     4.95    4.69    4.463    4.063    3.729    3.583   3.383

 

  15     4.94    4.69    4.462    4.062    3.730    3.583   3.384

 

  16     4.95    4.69    4.463    4.063    3.729    3.583   3.383

 

  17     4.94    4.69    4.462    4.062    3.730    3.583   3.384

 

  18     4.95    4.69    4.463    4.063    3.729    3.583   3.383

 

  19     1.85    4.69    4.462    4.062    3.730    3.583   3.384

 

  20             1.76    4.463    4.063    3.729    3.583   3.383

 

  21                     1.673    4.062    3.730    3.583   3.384

 

  22                              4.063    3.729    3.583   3.383

 

  23                              1.523    3.730    3.583   3.384

 

  24                                       3.729    3.582   3.383

 

  25                                       1.399    3.583   3.384

 

  26                                                1.343   3.383

 

  27                                                        2.961

 

  28

 

  29

 

  30

 

  31

 

  32

 

  33

 

  34

 

  35

 

  36

 

  37

 

  38

 

  39

 

  40

 

  41

 

  42

 

  43

 

  44

 

  45

 

  46

 

  47

 

  48

 

  49

 

  50

 

  51

 

 --------------------------------------------------------------------

 

 [Table Continued]

 

 --------------------------------------------------------

 

                 Recovery periods in years

 

 Year  --------------------------------------------------

 

          28     30       35       40       45       50

 

 --------------------------------------------------------

 

   1   3.348%   3.125%   2.679%   2.344%   2.083%   1.875%

 

   2   5.178    4.844    4.171    3.662    3.264    2.944

 

   3   4.900    4.602    3.992    3.525    3.155    2.855

 

   4   4.638    4.371    3.821    3.393    3.050    2.770

 

   5   4.389    4.153    3.657    3.265    2.948    2.687

 

   6   4.154    3.945    3.501    3.143    2.850    2.606

 

   7   3.932    3.748    3.351    3.025    2.755    2.528

 

   8   3.721    3.561    3.207    2.912    2.663    2.452

 

   9   3.522    3.383    3.069    2.802    2.574    2.378

 

  10   3.333    3.213    2.938    2.697    2.489    2.307

 

  11   3.205    3.053    2.812    2.596    2.406    2.238

 

  12   3.205    2.994    2.692    2.499    2.325    2.171

 

  13   3.205    2.994    2.576    2.405    2.248    2.106

 

  14   3.205    2.994    2.571    2.315    2.173    2.042

 

  15   3.205    2.994    2.571    2.253    2.101    1.981

 

  16   3.204    2.994    2.571    2.253    2.031    1.922

 

  17   3.205    2.994    2.571    2.253    2.005    1.864

 

  18   3.204    2.993    2.571    2.253    2.005    1.808

 

  19   3.205    2.994    2.571    2.253    2.005    1.806

 

  20   3.204    2.993    2.571    2.253    2.005    1.806

 

  21   3.205    2.994    2.572    2.253    2.005    1.806

 

  22   3.204    2.993    2.571    2.253    2.005    1.806

 

  23   3.205    2.994    2.572    2.253    2.004    1.806

 

  24   3.204    2.993    2.571    2.253    2.005    1.806

 

  25   3.205    2.994    2.572    2.253    2.004    1.806

 

  26   3.204    2.993    2.571    2.253    2.005    1.806

 

  27   3.205    2.994    2.572    2.253    2.004    1.806

 

  28   3.204    2.993    2.571    2.253    2.005    1.806

 

  29   1.202    2.994    2.572    2.253    2.004    1.806

 

  30            2.993    2.571    2.252    2.005    1.806

 

  31            1.123    2.572    2.253    2.004    1.806

 

  32                     2.571    2.252    2.005    1.806

 

  33                     2.572    2.253    2.004    1.806

 

  34                     2.571    2.252    2.005    1.806

 

  35                     2.572    2.253    2.004    1.806

 

  36                     0.964    2.252    2.005    1.806

 

  37                              2.253    2.004    1.806

 

  38                              2.252    2.005    1.806

 

  39                              2.253    2.004    1.806

 

  40                              2.252    2.005    1.806

 

  41                              0.845    2.004    1.806

 

  42                                       2.005    1.806

 

  43                                       2.004    1.806

 

  44                                       2.005    1.806

 

  45                                       2.004    1.805

 

  46                                       0.752    1.806

 

  47                                                1.805

 

  48                                                1.806

 

  49                                                1.805

 

  50                                                1.806

 

  51                                                0.677

 

 --------------------------------------------------------

 

 

Table A-17. 150% Declining Balance Method Mid-Quarter Convention Property Placed in Service in Third Quarter

 ------------------------------------------------------------------

 

                       Recovery periods in years

 

 Year  ------------------------------------------------------------

 

           2.5      3      3.5       4        5       6     6.5

 

 ------------------------------------------------------------------

 

    1     22.50%  18.75%  16.07%   14.06%   11.25%   9.38%  8.65%

 

    2     46.50   40.63   35.97    32.23    26.63   22.66  21.08

 

    3     27.56   25.00   22.57    20.46    18.64   16.99  16.22

 

    4      3.44   15.62   22.57    20.46    16.56   14.06  13.10

 

    5                      2.82    12.79    16.57   14.06  13.10

 

    6                                       10.35   14.06  13.11

 

    7                                                8.79  13.10

 

    8                                                       1.64

 

    9

 

   10

 

   11

 

 ------------------------------------------------------------------

 

 [Table Continued]

 

 ------------------------------------------------------------

 

                       Recovery periods in years

 

 Year  ------------------------------------------------------

 

             7     7.5       8       8.5       9       9.5

 

 ------------------------------------------------------------

 

    1     8.04%    7.50%    7.03%    6.62%    6.25%    5.92%

 

    2    19.71    18.50    17.43    16.48    15.63    14.85

 

    3    15.48    14.80    14.16    13.57    13.02    12.51

 

    4    12.27    11.84    11.51    11.18    10.85    10.53

 

    5    12.28    11.48    10.78    10.18     9.64     9.17

 

    6    12.27    11.48    10.78    10.17     9.65     9.17

 

    7    12.28    11.48    10.78    10.18     9.64     9.18

 

    8     7.67    11.48    10.79    10.17     9.65     9.17

 

    9              1.44     6.74    10.18     9.64     9.18

 

   10                                1.27     6.03     9.17

 

   11                                                  1.15

 

 ------------------------------------------------------------

 

 [Table Continued]

 

 ------------------------------------------------------------------

 

                       Recovery periods in years

 

 Year  ------------------------------------------------------------

 

            10     10.5     11      11.5      12     12.5    13

 

 ------------------------------------------------------------------

 

    1      5.63%   5.36%   5.11%    4.89%    4.69%   4.50%  4.33%

 

    2     14.16   13.52   12.94    12.41    11.91   11.46  11.04

 

    3     12.03   11.59   11.18    10.79    10.43   10.08   9.77

 

    4     10.23    9.93    9.65     9.38     9.12    8.88   8.64

 

    5      8.75    8.51    8.33     8.16     7.98    7.81   7.64

 

    6      8.75    8.34    7.97     7.63     7.33    7.05   6.79

 

    7      8.75    8.34    7.97     7.63     7.33    7.05   6.79

 

    8      8.74    8.34    7.97     7.63     7.33    7.05   6.79

 

    9      8.75    8.34    7.97     7.63     7.33    7.05   6.79

 

   10      8.74    8.34    7.97     7.63     7.32    7.05   6.79

 

   11      5.47    8.35    7.96     7.63     7.33    7.05   6.79

 

   12              1.04    4.98     7.64     7.32    7.04   6.80

 

   13                               0.95     4.58    7.05   6.79

 

   14                                                0.88   4.25

 

   15

 

   16

 

   17

 

   18

 

 ------------------------------------------------------------------

 

 [Table Continued]

 

 ------------------------------------------------------------

 

                    Recovery periods in years

 

 Year  ------------------------------------------------------

 

           13.5     14      15        16      16.5      17

 

 ------------------------------------------------------------

 

    1     4.17%    4.02%   3.75%     3.52%    3.41%    3.31%

 

    2    10.65    10.28    9.63      9.05     8.78     8.53

 

    3     9.46     9.18    8.66      8.20     7.98     7.78

 

    4     8.41     8.20    7.80      7.43     7.26     7.09

 

    5     7.48     7.32    7.02      6.73     6.60     6.47

 

    6     6.65     6.54    6.31      6.10     6.00     5.90

 

    7     6.55     6.31    5.90      5.55     5.45     5.38

 

    8     6.54     6.31    5.90      5.55     5.38     5.23

 

    9     6.55     6.32    5.91      5.55     5.39     5.23

 

   10     6.54     6.31    5.90      5.55     5.38     5.23

 

   11     6.55     6.32    5.91      5.55     5.39     5.23

 

   12     6.54     6.31    5.90      5.55     5.38     5.23

 

   13     6.55     6.32    5.91      5.55     5.39     5.22

 

   14     6.54     6.31    5.90      5.55     5.38     5.23

 

   15     0.82     3.95    5.91      5.55     5.39     5.22

 

   16                      3.69      5.55     5.38     5.23

 

   17                                3.47     5.39     5.22

 

   18                                         0.67     3.27

 

 ------------------------------------------------------------

 

 [Table Continued]

 

 ---------------------------------------------------------------------

 

                         Recovery periods in years

 

 Year  ---------------------------------------------------------------

 

            18      19       20       22      24       25     26.5

 

 ---------------------------------------------------------------------

 

    1      3.13%   2.96%   2.813%   2.557%   2.344%  2.250%  2.123%

 

    2      8.07    7.66    7.289    6.644    6.104   5.865   5.540

 

    3      7.40    7.06    6.742    6.191    5.722   5.513   5.227

 

    4      6.78    6.50    6.237    5.769    5.364   5.182   4.931

 

    5      6.22    5.99    5.769    5.375    5.029   4.871   4.652

 

    6      5.70    5.51    5.336    5.009    4.715   4.579   4.388

 

    7      5.23    5.08    4.936    4.667    4.420   4.304   4.140

 

    8      4.94    4.69    4.566    4.349    4.144   4.046   3.906

 

    9      4.94    4.69    4.460    4.064    3.885   3.803   3.685

 

   10      4.94    4.69    4.460    4.064    3.729   3.584   3.476

 

   11      4.94    4.69    4.460    4.064    3.730   3.584   3.383

 

   12      4.95    4.69    4.460    4.064    3.729   3.584   3.383

 

   13      4.94    4.69    4.461    4.064    3.730   3.584   3.383

 

   14      4.95    4.69    4.460    4.064    3.729   3.584   3.383

 

   15      4.94    4.70    4.461    4.064    3.730   3.584   3.383

 

   16      4.95    4.69    4.460    4.064    3.729   3.584   3.383

 

   17      4.94    4.70    4.461    4.064    3.730   3.584   3.383

 

   18      4.95    4.69    4.460    4.065    3.729   3.584   3.383

 

   19      3.09    4.70    4.461    4.064    3.730   3.584   3.383

 

   20              2.93    4.460    4.065    3.729   3.584   3.383

 

   21                      2.788    4.064    3.730   3.585   3.383

 

   22                               4.065    3.729   3.584   3.383

 

   23                               2.540    3.730   3.585   3.383

 

   24                                        3.729   3.584   3.383

 

   25                                        2.331   3.585   3.382

 

   26                                                2.240   3.383

 

   27                                                        3.382

 

   28                                                        0.423

 

   29

 

   30

 

   31

 

   32

 

   33

 

   34

 

   35

 

   36

 

   37

 

   38

 

   39

 

   40

 

   41

 

   42

 

   43

 

   44

 

   45

 

   46

 

   47

 

   48

 

   49

 

   50

 

   51

 

 ---------------------------------------------------------------------

 

 [Table Continued]

 

 ------------------------------------------------------------

 

                  Recovery periods in years

 

 Year  ------------------------------------------------------

 

            28      30       35       40        45       50

 

 ------------------------------------------------------------

 

    1     2.009%  1.875%   1.607%   1.406%    1.250%   1.125%

 

    2     5.250   4.906    4.217    3.697     3.292    2.966

 

    3     4.968   4.661    4.036    3.559     3.182    2.877

 

    4     4.702   4.428    3.863    3.425     3.076    2.791

 

    5     4.450   4.207    3.698    3.297     2.973    2.707

 

    6     4.212   3.996    3.539    3.173     2.874    2.626

 

    7     3.986   3.796    3.387    3.054     2.778    2.547

 

    8     3.773   3.607    3.242    2.940     2.686    2.471

 

    9     3.571   3.426    3.103    2.829     2.596    2.397

 

   10     3.379   3.255    2.970    2.723     2.510    2.325

 

   11     3.205   3.092    2.843    2.621     2.426    2.255

 

   12     3.205   2.994    2.721    2.523     2.345    2.187

 

   13     3.205   2.994    2.605    2.428     2.267    2.122

 

   14     3.205   2.994    2.571    2.337     2.192    2.058

 

   15     3.205   2.994    2.571    2.253     2.118    1.996

 

   16     3.206   2.994    2.571    2.253     2.048    1.937

 

   17     3.205   2.994    2.571    2.253     2.005    1.878

 

   18     3.206   2.994    2.571    2.253     2.005    1.822

 

   19     3.205   2.994    2.571    2.253     2.005    1.806

 

   20     3.206   2.993    2.571    2.253     2.005    1.806

 

   21     3.205   2.994    2.571    2.253     2.005    1.806

 

   22     3.206   2.993    2.571    2.253     2.005    1.806

 

   23     3.205   2.994    2.571    2.253     2.005    1.806

 

   24     3.206   2.993    2.571    2.253     2.005    1.806

 

   25     3.205   2.994    2.571    2.253     2.004    1.806

 

   26     3.206   2.993    2.571    2.253     2.005    1.806

 

   27     3.205   2.994    2.571    2.253     2.004    1.806

 

   28     3.206   2.993    2.571    2.253     2.005    1.806

 

   29     2.003   2.994    2.571    2.253     2.004    1.806

 

   30             2.993    2.571    2.253     2.005    1.806

 

   31             1.871    2.571    2.253     2.004    1.806

 

   32                      2.571    2.253     2.005    1.806

 

   33                      2.571    2.253     2.004    1.806

 

   34                      2.571    2.253     2.005    1.806

 

   35                      2.571    2.253     2.004    1.806

 

   36                      1.607    2.253     2.005    1.806

 

   37                               2.253     2.004    1.805

 

   38                               2.254     2.005    1.806

 

   39                               2.253     2.004    1.805

 

   40                               2.254     2.005    1.806

 

   41                               1.408     2.004    1.805

 

   42                                         2.005    1.806

 

   43                                         2.004    1.805

 

   44                                         2.005    1.806

 

   45                                         2.004    1.805

 

   46                                         1.253    1.806

 

   47                                                  1.805

 

   48                                                  1.806

 

   49                                                  1.805

 

   50                                                  1.806

 

   51                                                  1.128

 

 ------------------------------------------------------------

 

 

Table A-18. 150% Declining Balance Method Mid-Quarter Convention Property Placed in Service in Fourth Quarter

 ------------------------------------------------------------------

 

                        Recovery periods in years

 

 Year  ------------------------------------------------------------

 

         2.5      3      3.5       4        5        6      6.5

 

 ------------------------------------------------------------------

 

   1     7.50%   6.25%   5.36%    4.69%    3.75%    3.13%   2.88%

 

   2    55.50   46.88   40.56    35.74    28.88    24.22   22.41

 

   3    26.91   25.00   23.18    22.34    20.21    18.16   17.24

 

   4    10.09   21.87   22.47    19.86    16.40    14.06   13.26

 

   5                     8.43    17.37    16.41    14.06   13.10

 

   6                                      14.35    14.06   13.10

 

   7                                               12.31   13.10

 

   8                                                        4.91

 

   9

 

  10

 

  11

 

 ------------------------------------------------------------------

 

 [Table Continued]

 

 -------------------------------------------------------------

 

                     Recovery periods in years

 

 Year  -------------------------------------------------------

 

           7       7.5       8       8.5       9       9.5

 

 -------------------------------------------------------------

 

   1      2.68%    2.50%    2.34%    2.21%    2.08%    1.97%

 

   2     20.85    19.50    18.31    17.26    16.32    15.48

 

   3     16.39    15.60    14.88    14.21    13.60    13.03

 

   4     12.87    12.48    12.09    11.70    11.33    10.98

 

   5     12.18    11.41    10.74    10.16     9.65     9.24

 

   6     12.18    11.41    10.75    10.16     9.65     9.17

 

   7     12.19    11.41    10.74    10.16     9.64     9.17

 

   8     10.66    11.41    10.75    10.16     9.65     9.17

 

   9               4.28     9.40    10.17     9.64     9.17

 

  10                                 3.81     8.44     9.18

 

  11                                                   3.44

 

 --------------------------------------------------------------

 

 [Table Continued]

 

 ------------------------------------------------------------------

 

                         Recovery periods in years

 

 Year  ------------------------------------------------------------

 

          10    10.5      11     11.5       12     12.5      13

 

 ------------------------------------------------------------------

 

   1     1.88%   1.79%   1.70%    1.63%    1.56%    1.50%   1.44%

 

   2    14.72   14.03   13.40    12.83    12.31    11.82   11.37

 

   3    12.51   12.03   11.58    11.16    10.77    10.40   10.06

 

   4    10.63   10.31   10.00     9.70     9.42     9.15    8.90

 

   5     9.04    8.83    8.63     8.44     8.24     8.06    7.87

 

   6     8.72    8.32    7.95     7.63     7.33     7.09    6.96

 

   7     8.72    8.31    7.96     7.63     7.33     7.05    6.78

 

   8     8.72    8.32    7.95     7.62     7.33     7.05    6.78

 

   9     8.72    8.31    7.96     7.63     7.33     7.05    6.78

 

  10     8.71    8.32    7.95     7.62     7.32     7.05    6.78

 

  11     7.63    8.31    7.96     7.63     7.33     7.05    6.78

 

  12             3.12    6.96     7.62     7.32     7.04    6.78

 

  13                              2.86     6.41     7.05    6.78

 

  14                                                2.64    5.94

 

  15

 

  16

 

  17

 

  18

 

 ------------------------------------------------------------------

 

 [Table Continued]

 

 --------------------------------------------------------------

 

                     Recovery periods in years

 

 Year  --------------------------------------------------------

 

         13.5       14       15       16     16.5       17

 

 --------------------------------------------------------------

 

   1      1.39%    1.34%    1.25%    1.17%    1.14%    1.10%

 

   2     10.96    10.57     9.88     9.27     8.99     8.73

 

   3      9.74     9.44     8.89     8.40     8.17     7.96

 

   4      8.66     8.43     8.00     7.61     7.43     7.25

 

   5      7.69     7.52     7.20     6.90     6.75     6.61

 

   6      6.84     6.72     6.48     6.25     6.14     6.03

 

   7      6.53     6.31     5.90     5.66     5.58     5.50

 

   8      6.53     6.31     5.90     5.54     5.38     5.22

 

   9      6.53     6.31     5.90     5.54     5.38     5.23

 

  10      6.54     6.31     5.91     5.54     5.38     5.22

 

  11      6.53     6.31     5.90     5.54     5.38     5.23

 

  12      6.54     6.30     5.91     5.55     5.38     5.22

 

  13      6.53     6.31     5.90     5.54     5.38     5.23

 

  14      6.54     6.30     5.91     5.55     5.38     5.22

 

  15      2.45     5.52     5.90     5.54     5.37     5.23

 

  16                        5.17     5.55     5.38     5.22

 

  17                                 4.85     5.37     5.23

 

  18                                          2.02     4.57

 

 -------------------------------------------------------------

 

 [Table Continued]

 

 --------------------------------------------------------------------

 

                        Recovery periods in years

 

 Year  --------------------------------------------------------------

 

          18      19      20       22       24       25      26.5

 

 --------------------------------------------------------------------

 

   1     1.04%   0.99%   0.938%   0.852%   0.781%   0.750%  0.708%

 

   2     8.25    7.82    7.430    6.760    6.201    5.955   5.620

 

   3     7.56    7.20    6.872    6.299    5.814    5.598   5.302

 

   4     6.93    6.63    6.357    5.870    5.450    5.262   5.002

 

   5     6.35    6.11    5.880    5.469    5.110    4.946   4.719

 

   6     5.82    5.63    5.439    5.097    4.790    4.649   4.452

 

   7     5.34    5.18    5.031    4.749    4.491    4.370   4.200

 

   8     4.94    4.77    4.654    4.425    4.210    4.108   3.962

 

   9     4.94    4.69    4.458    4.124    3.947    3.862   3.738

 

  10     4.94    4.69    4.458    4.062    3.730    3.630   3.526

 

  11     4.95    4.69    4.458    4.062    3.729    3.582   3.383

 

  12     4.94    4.69    4.458    4.062    3.730    3.582   3.382

 

  13     4.95    4.69    4.458    4.062    3.729    3.582   3.383

 

  14     4.94    4.69    4.458    4.061    3.730    3.582   3.382

 

  15     4.95    4.69    4.458    4.062    3.729    3.582   3.383

 

  16     4.94    4.69    4.458    4.061    3.730    3.583   3.382

 

  17     4.95    4.68    4.458    4.062    3.729    3.582   3.383

 

  18     4.94    4.69    4.459    4.061    3.730    3.583   3.382

 

  19     4.33    4.68    4.458    4.062    3.729    3.582   3.383

 

  20             4.10    4.459    4.061    3.730    3.583   3.382

 

  21                     3.901    4.062    3.729    3.582   3.383

 

  22                              4.061    3.730    3.583   3.382

 

  23                              3.554    3.729    3.582   3.383

 

  24                                       3.730    3.583   3.382

 

  25                                       3.263    3.582   3.383

 

  26                                                3.135   3.382

 

  27                                                        3.383

 

  28                                                        1.268

 

  29

 

  30

 

  31

 

  32

 

  33

 

  34

 

  35

 

  36

 

  37

 

  38

 

  39

 

  40

 

  41

 

  42

 

  43

 

  44

 

  45

 

  46

 

  47

 

  48

 

  49

 

  50

 

  51

 

 --------------------------------------------------------------------

 

 [Table Continued]

 

 -------------------------------------------------------------

 

                  Recovery periods in years

 

 Year  -------------------------------------------------------

 

            28      30       35       40       45       50

 

 -------------------------------------------------------------

 

   1      0.670%   0.625%   0.536%   0.469%   0.417%   0.375%

 

   2      5.321    4.969    4.263    3.732    3.319    2.989

 

   3      5.036    4.720    4.080    3.592    3.209    2.899

 

   4      4.766    4.484    3.905    3.458    3.102    2.812

 

   5      4.511    4.260    3.738    3.328    2.998    2.728

 

   6      4.269    4.047    3.578    3.203    2.898    2.646

 

   7      4.041    3.845    3.424    3.083    2.802    2.567

 

   8      3.824    3.653    3.278    2.968    2.708    2.490

 

   9      3.619    3.470    3.137    2.856    2.618    2.415

 

  10      3.426    3.296    3.003    2.749    2.531    2.342

 

  11      3.242    3.132    2.874    2.646    2.447    2.272

 

  12      3.204    2.994    2.751    2.547    2.365    2.204

 

  13      3.204    2.994    2.633    2.451    2.286    2.138

 

  14      3.204    2.994    2.570    2.359    2.210    2.074

 

  15      3.204    2.994    2.571    2.271    2.136    2.011

 

  16      3.204    2.994    2.570    2.253    2.065    1.951

 

  17      3.204    2.994    2.571    2.253    2.005    1.893

 

  18      3.204    2.994    2.570    2.253    2.005    1.836

 

  19      3.204    2.993    2.571    2.253    2.005    1.806

 

  20      3.204    2.994    2.570    2.253    2.005    1.806

 

  21      3.204    2.993    2.571    2.253    2.005    1.806

 

  22      3.204    2.994    2.570    2.253    2.005    1.806

 

  23      3.205    2.993    2.571    2.253    2.005    1.806

 

  24      3.204    2.994    2.570    2.253    2.005    1.805

 

  25      3.205    2.993    2.571    2.253    2.005    1.806

 

  26      3.204    2.994    2.570    2.252    2.005    1.805

 

  27      3.205    2.993    2.571    2.253    2.004    1.806

 

  28      3.204    2.994    2.570    2.252    2.005    1.805

 

  29      2.804    2.993    2.571    2.253    2.004    1.806

 

  30               2.994    2.570    2.252    2.005    1.805

 

  31               2.619    2.571    2.253    2.004    1.806

 

  32                        2.570    2.252    2.005    1.805

 

  33                        2.571    2.253    2.004    1.806

 

  34                        2.570    2.252    2.005    1.805

 

  35                        2.571    2.253    2.004    1.806

 

  36                        2.249    2.252    2.005    1.805

 

  37                                 2.253    2.004    1.806

 

  38                                 2.252    2.005    1.805

 

  39                                 2.253    2.004    1.806

 

  40                                 2.252    2.005    1.805

 

  41                                 1.971    2.004    1.806

 

  42                                          2.005    1.805

 

  43                                          2.004    1.806

 

  44                                          2.005    1.805

 

  45                                          2.004    1.806

 

  46                                          1.754    1.805

 

  47                                                   1.806

 

  48                                                   1.805

 

  49                                                   1.806

 

  50                                                   1.805

 

  51                                                   1.580

 

 -------------------------------------------------------------

 

 

RATES TO FIGURE INCLUSION AMOUNTS FOR LEASED LISTED PROPERTY

Table A-19. Amount A Percentages

 -------------------------------------------------------------------

 

                           First Tax Year During Lease in Which

 

   Recovery Period             Business Use is 50% or Less

 

   of Property      ------------------------------------------------

 

   Under ADS             1      2       3       4       5       6

 

 -------------------------------------------------------------------

 

   Less than 7 years    2.1%  -7.2%  -19.8%  -20.1%  -12.4%  -12.4%

 

   7 to 10 years        3.9%  -3.8%  -17.7%  -25.1%  -27.8%  -27.2%

 

   More than 10 years   6.6%  -1.6%  -16.9%  -25.6%  -29.9%  -31.1%

 

 -------------------------------------------------------------------

 

 [Table Continued]

 

 ----------------------------------------------------------------------

 

                           First Tax Year During Lease in Which

 

   Recovery Period             Business Use is 50% or Less

 

   of Property         ------------------------------------------------

 

   Under ADS              7       8       9      10      11    12 &

 

                                                               Later

 

 ----------------------------------------------------------------------

 

   Less than 7 years   -12.4%  -12.4%  -12.4%  -12.4%  -12.4%  -12.4%

 

   7 to 10 years       -27.1%  -27.6%  -23.7%  -14.7%  -14.7%  -14.7%

 

   More than 10 years  -32.8%  -35.1%  -33.3%  -26.7%  -19.7%  -12.2%

 

 ----------------------------------------------------------------------

 

 

Table A-20. Amount B Percentages

 ------------------------------------------------------------------

 

                           First Tax Year During Lease in Which

 

   Recovery Period             Business Use is 50% or Less

 

   of Property      -----------------------------------------------

 

   Under ADS             1      2       3       4       5       6

 

 ------------------------------------------------------------------

 

   Less than 7 years    0.0%  10.0%   22.0%   21.2%   12.7%   12.7%

 

   7 to 10 years        0.0%   9.3%   23.8%   31.3%   33.8%   32.7%

 

   More than 10 years   0.0%  10.1%   26.3%   35.4%   39.6%   40.2%

 

 ------------------------------------------------------------------

 

 [Table Continued]

 

 ----------------------------------------------------------------------

 

                          First Tax Year During Lease in Which

 

   Recovery Period             Business Use is 50% or Less

 

   of Property      ---------------------------------------------------

 

   Under ADS              7       8       9      10      11     12 &

 

                                                                Later

 

 ----------------------------------------------------------------------

 

   Less than 7 years    12.7%   12.7%   12.7%   12.7%   12.7%   12.7%

 

   7 to 10 years        31.6%   30.5%   25.0%   15.0%   15.0%   15.0%

 

   More than 10 years   40.8%   41.4%   37.5%   29.2%   20.8%   12.5%

 

 ----------------------------------------------------------------------

 

 

Qualified Indian Reservation Property Tables

Table A-21. 2-Year Qualified Indian Reservation Property Half-Year and Mid-Quarter Conventions

 ------------------------------------------------

 

       Half-Year

 

 Year  Convention   Q-1     Q-2     Q-3     Q-4

 

 ------------------------------------------------

 

   1     50.00%    87.50%  62.50%  37.50%  12.50%

 

 ------------------------------------------------

 

   2     50.00     12.50   37.50   62.50   87.50

 

 ------------------------------------------------

 

 

Table A-22. 4-Year Qualified Indian Reservation Property Half-Year and Mid-Quarter Conventions

 ------------------------------------------------

 

       Half-Year

 

 Year  Convention   Q-1     Q-2     Q-3     Q-4

 

 ------------------------------------------------

 

   1     25.00%    43.75%  31.25%  18.75%   6.25%

 

 ------------------------------------------------

 

   2     37.50     28.13   34.37   40.63   46.87

 

 ------------------------------------------------

 

   3     18.75     14.06   17.19   20.31   23.44

 

 ------------------------------------------------

 

   4     12.50     12.50   12.50   12.50   12.50

 

 ------------------------------------------------

 

   5      6.25      1.56    4.69    7.81   10.94

 

 ------------------------------------------------

 

 

Table A-23. 6-Year Qualified Indian Reservation Property Half-Year and Mid-Quarter Conventions

 ------------------------------------------------

 

       Half-Year

 

 Year  Convention   Q-1     Q-2     Q-3     Q-4

 

 ------------------------------------------------

 

   1     16.67%    29.17%  20.83%  12.50%   4.17%

 

 ------------------------------------------------

 

   2     27.78     23.61   26.39   29.17   31.94

 

 ------------------------------------------------

 

   3     18.52     15.74   17.59   19.44   21.30

 

 ------------------------------------------------

 

   4     12.35     10.49   11.73   12.96   14.20

 

 ------------------------------------------------

 

   5      9.87      9.88    9.88    9.88    9.87

 

 ------------------------------------------------

 

   6      9.87      9.88    9.88    9.88    9.88

 

 ------------------------------------------------

 

   7      4.94      1.23    3.70    6.17    8.64

 

 ------------------------------------------------

 

 

Table A-24. Qualified Nonresidential Real Indian Reservation Property Mid-Month Convention Straight Line--22 Years

 --------------------------------------------------------------------

 

                  Month property placed in service

 

 Year  --------------------------------------------------------------

 

         1       2       3       4       5       6       7       8

 

 --------------------------------------------------------------------

 

   1   4.356%  3.977%  3.598%  3.220%  2.841%  2.462%  2.083%  1.705%

 

 --------------------------------------------------------------------

 

  2-3  4.545   4.545   4.545   4.545   4.545   4.545   4.545   4.545

 

 --------------------------------------------------------------------

 

   4   4.546   4.546   4.546   4.545   4.545   4.546   4.546   4.545

 

 --------------------------------------------------------------------

 

   5   4.545   4.545   4.545   4.546   4.546   4.545   4.545   4.546

 

 --------------------------------------------------------------------

 

   6   4.546   4.546   4.546   4.545   4.545   4.546   4.546   4.545

 

 --------------------------------------------------------------------

 

   7   4.545   4.545   4.545   4.546   4.546   4.545   4.545   4.546

 

 --------------------------------------------------------------------

 

   8   4.546   4.546   4.546   4.545   4.545   4.546   4.546   4.545

 

 --------------------------------------------------------------------

 

   9   4.545   4.545   4.545   4.546   4.546   4.545   4.545   4.546

 

 --------------------------------------------------------------------

 

  10   4.546   4.546   4.546   4.545   4.545   4.546   4.546   4.545

 

 --------------------------------------------------------------------

 

  11   4.545   4.545   4.545   4.546   4.546   4.545   4.545   4.546

 

 --------------------------------------------------------------------

 

  12   4.546   4.546   4.546   4.545   4.545   4.546   4.546   4.545

 

 --------------------------------------------------------------------

 

  13   4.545   4.545   4.545   4.546   4.546   4.545   4.545   4.546

 

 --------------------------------------------------------------------

 

  14   4.546   4.546   4.546   4.545   4.545   4.546   4.546   4.545

 

 --------------------------------------------------------------------

 

  15   4.545   4.545   4.545   4.546   4.546   4.545   4.545   4.546

 

 --------------------------------------------------------------------

 

  16   4.546   4.546   4.546   4.545   4.545   4.546   4.546   4.545

 

 --------------------------------------------------------------------

 

  17   4.545   4.545   4.545   4.546   4.546   4.545   4.545   4.546

 

 --------------------------------------------------------------------

 

  18   4.546   4.546   4.546   4.545   4.545   4.546   4.546   4.545

 

 --------------------------------------------------------------------

 

  19   4.545   4.545   4.545   4.546   4.546   4.545   4.545   4.546

 

 --------------------------------------------------------------------

 

  20   4.546   4.546   4.546   4.545   4.545   4.546   4.546   4.545

 

 --------------------------------------------------------------------

 

  21   4.545   4.545   4.545   4.546   4.546   4.545   4.545   4.546

 

 --------------------------------------------------------------------

 

  22   4.546   4.546   4.546   4.545   4.545   4.546   4.546   4.545

 

 --------------------------------------------------------------------

 

  23   0.189%  0.568%  0.947%  1.326%  1.705%  2.083%  2.462%  2.841%

 

 ----------------------------------------------------------------------

 

 [Table Continued]

 

 -----------------------------------

 

          Month property placed in

 

                  service

 

 Year  ------------------------------

 

         9       10      11      12

 

 ------------------------------------

 

   1   1.326%  0.947%  0.568%  0.189%

 

 ------------------------------------

 

  2-3  4.545   4.545   4.545   4.545

 

 ------------------------------------

 

   4   4.545   4.546   4.546   4.546

 

 ------------------------------------

 

   5   4.546   4.545   4.545   4.545

 

 ------------------------------------

 

   6   4.545   4.546   4.546   4.546

 

 ------------------------------------

 

   7   4.546   4.545   4.545   4.545

 

 ------------------------------------

 

   8   4.545   4.546   4.546   4.546

 

 ------------------------------------

 

   9   4.546   4.545   4.545   4.545

 

 ------------------------------------

 

  10   4.545   4.546   4.546   4.546

 

 ------------------------------------

 

  11   4.546   4.545   4.545   4.545

 

 ------------------------------------

 

  12   4.545   4.546   4.546   4.546

 

 ------------------------------------

 

  13   4.546   4.545   4.545   4.545

 

 ------------------------------------

 

  14   4.545   4.546   4.546   4.546

 

 ------------------------------------

 

  15   4.546   4.545   4.545   4.545

 

 ------------------------------------

 

  16   4.545   4.546   4.546   4.546

 

 ------------------------------------

 

  17   4.546   4.545   4.545   4.545

 

 ------------------------------------

 

  18   4.545   4.546   4.546   4.546

 

 ------------------------------------

 

  19   4.546   4.545   4.545   4.545

 

 ------------------------------------

 

  20   4.545   4.546   4.546   4.546

 

 ------------------------------------

 

  21   4.546   4.545   4.545   4.545

 

 ------------------------------------

 

  22   4.545   4.546   4.546   4.546

 

 ------------------------------------

 

  23   3.220%  3.598%  3.977%  4.356%

 

 ------------------------------------

 

 

Appendix B. Table of Class Lives and Recovery Periods

The Table of Class Lives and Recovery Periods has two sections. The first section, Specific Depreciable Assets Used In All Business Activities, Except As Noted, generally lists assets used in all business activities. It is shown as Table B-1. The second section, Depreciable Assets Used In The Following Activities, describes assets used only in certain activities. It is shown as Table B-2.

How To Use the Tables

You will need to look at both Table B-1 and B-2 to find the correct recovery period. Generally, if the property is listed in Table B-1 you use the recovery period shown in that table. However, if the property is specifically listed in Table B-2 under the type of activity in which it is used, you use the recovery period listed under the activity in that table. Use the tables in the order shown below to determine the recovery period of your depreciable property.

Table B-1. Check Table B-1 for a description of the property. If it is described in Table B-1, also check Table B-2 to find the activity in which the property is being used. If the activity is described in Table B-2, read the text (if any) under the title to determine if the property is specifically included in that asset class. If it is, use the recovery period shown in the appropriate column of Table B-2 following the description of the activity. If the activity is not described in Table B-2 or if the activity is described but the property either is not specifically included in or is specifically excluded from that asset class, then use the recovery period shown in the appropriate column following the description of the property in Table B-1.

Tax-exempt use property subject to a lease. The recovery period for ADS cannot be less than 125 percent of the lease term for any property leased under a leasing arrangement to a tax-exempt organization, governmental unit, or foreign person or entity (other than a partnership).

Table B-2. If the property is not listed in Table B-1, check Table B-2 to find the activity in which the property is being used and use the recovery period shown in the appropriate column following the description.

Property not in either table. If the activity or the property is not included in either table, check the end of Table B-2 to find Certain Property for Which Recovery Periods Assigned. This property generally has a recovery period of 7 years for GDS or 12 years for ADS. See Which Property Class Applies Under GDS and Which Recovery Period Applies in chapter 4 for the class lives or the recovery periods for GDS and ADS for the following.

 

• Residential rental property and nonresidential real property (also see Appendix A, Chart 2).

• Qualified rent-to-own property.

• A motorsport entertainment complex placed in service before January 1, 2017.

• Any retail motor fuels outlet.

• Any qualified leasehold improvement property.

• Any qualified restaurant property.

• Initial clearing and grading land improvements for gas utility property and electric utility transmission and distribution plants.

• Any water utility property.

• Certain electric transmission property used in the transmission at 69 or more kilovolts of electricity for sale and placed in service after April 11, 2005.

• Natural gas gathering and distribution lines placed in service after April 11, 2005.

 

Example 1. Richard Green is a paper manufacturer. During the year, he made substantial improvements to the land on which his paper plant is located. He checks Table B-1 and finds land improvements under asset class 00.3. He then checks Table B-2 and finds his activity, paper manufacturing, under asset class 26.1, Manufacture of Pulp and Paper. He uses the recovery period under this asset class because it specifically includes land improvements. The land improvements have a 13-year class life and a 7-year recovery period for GDS. If he elects to use ADS, the recovery period is 13 years. If Richard only looked at Table B-1, he would select asset class 00.3, Land Improvements, and incorrectly use a recovery period of 15 years for GDS or 20 years for ADS.

Example 2. Sam Plower produces rubber products. During the year, he made substantial improvements to the land on which his rubber plant is located. He checks Table B-1 and finds land improvements under asset class 00.3. He then checks Table B-2 and finds his activity, producing rubber products, under asset class 30.1, Manufacture of Rubber Products. Reading the headings and descriptions under asset class 30.1, Sam finds that it does not include land improvements. Therefore, Sam uses the recovery period under asset class 00.3. The land improvements have a 20-year class life and a 15-year recovery period for GDS. If he elects to use ADS, the recovery period is 20 years.

Example 3. Pam Martin owns a retail clothing store. During the year, she purchased a desk and a cash register for use in her business. She checks Table B-1 and finds office furniture under asset class 00.11. Cash registers are not listed in any of the asset classes in Table B-1. She then checks Table B-2 and finds her activity, retail store, under asset class 57.0, Distributive Trades and Services, which includes assets used in wholesale and retail trade. This asset class does not specifically list office furniture or a cash register. She looks back at Table B-1 and uses asset class 00.11 for the desk. The desk has a 10-year class life and a 7-year recovery period for GDS. If she elects to use ADS, the recovery period is 10 years. For the cash register, she uses asset class 57.0 because cash registers are not listed in Table B-1 but it is an asset used in her retail business. The cash register has a 9-year class life and a 5-year recovery period for GDS. If she elects to use the ADS method, the recovery period is 9 years.

Table B-1. Table of Class Lives and Recovery Periods

 ----------------------------------------------------------------------

 

                                                   Recovery Periods

 

                                                      (in years)

 

                                               ------------------------

 

 Asset                                         Class Life  GDS

 

 class   Description of assets included        (in years)  (MACRS)  ADS

 

 ----------------------------------------------------------------------

 

 SPECIFIC DEPRECIABLE ASSETS USED IN ALL

 

 BUSINESS ACTIVITIES, EXCEPT AS NOTED:

 

 ----------------------------------------------------------------------

 

 00.11   Office Furniture, Fixtures, and

 

         Equipment:

 

         Includes furniture and fixtures that       10        7     10

 

         are not a structural component of a

 

         building. Includes such assets as

 

         desks, files, safes, and

 

         communications equipment. Does not

 

         include communications equipment

 

         that is included in other classes.

 

 ----------------------------------------------------------------------

 

 00.12   Information Systems:

 

         Includes computers and their                6        5      5

 

         peripheral equipment used in

 

         administering normal business

 

         transactions and the maintenance of

 

         business records, their retrieval

 

         and analysis. Information systems

 

         are defined as:

 

         1) Computers: A computer is a

 

         programmable electronically

 

         activated device capable of

 

         accepting information, applying

 

         prescribed processes to the

 

         information, and supplying the

 

         results of these processes with or

 

         without human intervention. It

 

         usually consists of a central

 

         processing unit containing extensive

 

         storage, logic, arithmetic, and

 

         control capabilities. Excluded from

 

         this category are adding machines,

 

         electronic desk calculators, etc.,

 

         and other equipment described in

 

         class 00.13.

 

         2) Peripheral equipment consists of

 

         the auxiliary machines which are

 

         designed to be placed under control

 

         of the central processing unit.

 

         Nonlimiting examples are: Card

 

         readers, card punches, magnetic tape

 

         feeds, high speed printers, optical

 

         character readers, tape cassettes,

 

         mass storage units, paper tape

 

         equipment, keypunches, data entry

 

         devices, teleprinters, terminals,

 

         tape drives, disc drives, disc

 

         files, disc packs, visual image

 

         projector tubes, card sorters,

 

         plotters, and collators. Peripheral

 

         equipment may be used on-line or

 

         off-line. Does not incude equipment

 

         that is an integral part of other

 

         capital equipment that is included

 

         in other classes of economic

 

         activity, i.e., computers used

 

         primarily for process or production

 

         control, switching, channeling, and

 

         automating distributive trades and

 

         services such as point of sale (POS)

 

         computer systems. Also, does not

 

         include equipment of a kind used

 

         primarily for amusement or

 

         entertainment of the user.

 

 ----------------------------------------------------------------------

 

 00.13   Data Handling Equipment; except

 

         Computers:

 

         Includes only typewriters,                  6        5      6

 

         calculators, adding and accounting

 

         machines, copiers, and duplicating

 

         equipment.

 

 ----------------------------------------------------------------------

 

 00.21   Airplanes (airframes and engines),          6        5      6

 

         except those used in commercial or

 

         contract carrying of passengers or

 

         freight, and all helicopters

 

         (airframes and engines)

 

 ----------------------------------------------------------------------

 

 00.22   Automobiles, Taxis                          3        5      5

 

 ----------------------------------------------------------------------

 

 00.23   Buses                                       9        5      9

 

 ----------------------------------------------------------------------

 

 00.241  Light General Purpose Trucks:

 

         Includes trucks for use over the            4        5      5

 

         road (actual weight less than 13,000

 

         pounds)

 

 ----------------------------------------------------------------------

 

 00.242  Heavy General Purpose Trucks:

 

         Includes heavy general purpose              6        5      6

 

         trucks, concrete ready mix-trucks,

 

         and ore trucks, for use over the

 

         road (actual unloaded weight 13,000

 

         pounds or more)

 

 ----------------------------------------------------------------------

 

 00.25   Railroad Cars and Locomotives,             15        7     15

 

         except those owned by railroad

 

         transportation companies

 

 ----------------------------------------------------------------------

 

 00.26   Tractor Units for Use Over-The-Road         4        3      4

 

 ----------------------------------------------------------------------

 

 00.27   Trailers and Trailer-Mounted                6        5      6

 

         Containers

 

 ----------------------------------------------------------------------

 

 00.28   Vessels, Barges, Tugs, and Similar         18       10     18

 

         Water Transportation Equipment,

 

         except those used in marine

 

         construction

 

 ----------------------------------------------------------------------

 

 00.3    Land Improvements:

 

         Includes improvements directly to or       20       15     20

 

         added to land, whether such

 

         improvements are section 1245

 

         property or section 1250 property,

 

         provided such improvements are

 

         depreciable. Examples of such assets

 

         might include sidewalks, roads,

 

         canals, waterways, drainage

 

         facilities, sewers (not including

 

         municipal sewers in Class 51),

 

         wharves and clocks, bridges, fences,

 

         landscaping shrubbery, or radio and

 

         television transmitting towers. Does

 

         not include land improvements that

 

         are explicitly included in any other

 

         class, and buildings and structural

 

         components as defined in section

 

         1.48-1(e) of the regulations.

 

         Excludes public utility initial

 

         clearing and grading land

 

         improvements as specified in Rev.

 

         Rul. 72-403, 1972-2 C.B. 102.

 

 ----------------------------------------------------------------------

 

 00.4    Industrial Steam and Electric

 

         Generation and/or Distribution Systems:

 

         Includes assets, whether such assets       22       15     22

 

         are section 1245 property or 1250

 

         property, providing such assets are

 

         depreciable, used in the production

 

         and/or distribution of electricity

 

         with rated total capacity in excess

 

         of 500 Kilowatts and/or assets used

 

         in the production and/or

 

         distribution of steam with rated

 

         total capacity in excess of 12,500

 

         pounds per hour for use by the

 

         taxpayer in its industrial

 

         manufacturing process or plant

 

         activity and not ordinarily

 

         available for sale to others. Does

 

         not include buildings and structural

 

         components as defined in section

 

         1.48-1(e) of the regulations. Assets

 

         used to generate and/or distribute

 

         electricity or steam of the type

 

         described above, but of lesser rated

 

         capacity, are not included, but are

 

         included in the appropriate

 

         manufacturing equipment classes

 

         elsewhere specified. Also includes

 

         electric generating and steam

 

         distribution assets, which may

 

         utilize steam produced by a waste

 

         reduction and resource recovery

 

         plant, used by the taxpayer in its

 

         industrial manufacturing process or

 

         plant activity. Steam and chemical

 

         recovery boiler systems used for the

 

         recovery and regeneration of

 

         chemicals used in manufacturing,

 

         with rated capacity in excess of

 

         that described above, with

 

         specifically related distribution

 

         and return systems are not included

 

         but are included in appropriate

 

         manufacturing equipment classes

 

         elsewhere specified. An example of

 

         an excluded steam and chemical

 

         recovery boiler system is that used

 

         in the pulp and paper manufacturing

 

         equipment classes elsewhere

 

         specified. An example of an

 

         excluded steam and chemical

 

         recovery boiler system is that used

 

         in the pulp and paper manufacturing

 

         industry.

 

 ----------------------------------------------------------------------

 

 

Table B-2. Table of Class Lives and Recovery Periods

 ----------------------------------------------------------------------

 

                                              Recovery Periods

 

                                                 (in years)

 

                                     ----------------------------------

 

 Asset   Description of assets       Class Life    GDS

 

 class         included              (in years)  (MACRS)       ADS

 

 ----------------------------------------------------------------------

 

 DEPRECIABLE ASSETS USED IN THE

 

 FOLLOWING ACTIVITIES:

 

 ----------------------------------------------------------------------

 

 01.1    Agriculture:

 

         Includes machinery and          10         7           10

 

         equipment, grain bins,

 

         and fences but no other

 

         land improvements, that

 

         are used in the

 

         production of crops or

 

         plants, vines, and trees;

 

         livestock; the operation

 

         of farm dairies,

 

         nurseries, greenhouses,

 

         sod farms, mushroom

 

         cellars, cranberry bogs,

 

         apiaries, and fur farms;

 

         the performance of

 

         agriculture, animal

 

         husbandry, and

 

         horticultural services.

 

 ----------------------------------------------------------------------

 

 01.11   Cotton Ginning Assets           12         7           12

 

 ----------------------------------------------------------------------

 

 01.21   Cattle, Breeding or Dairy        7         5            7

 

 ----------------------------------------------------------------------

 

 01.221  Any breeding or work            10         7           10

 

         horse that is 12 years

 

         old or less at the time

 

         it is placed in service**

 

 ----------------------------------------------------------------------

 

 01.222  Any breeding or work            10         3           10

 

         horse that is more than

 

         12 years old at the time

 

         it is placed in service**

 

 ----------------------------------------------------------------------

 

 01.223  Any race horse that is           *         3           12

 

         more than 2 years old at

 

         the time it is placed in

 

         service**

 

 ----------------------------------------------------------------------

 

 01.224  Any horse that is more           *         3           12

 

         than 12 years old at the

 

         time it is placed in

 

         service and that is

 

         neither a race horse nor

 

         a horse described in

 

         class 01.222**

 

 ----------------------------------------------------------------------

 

 01.225  Any horse not described          *         7           12

 

         in classes 01.221,

 

         01.222, 01.223, or 01.224

 

 ----------------------------------------------------------------------

 

 01.23   Hogs, Breeding                   3         3            3

 

 ----------------------------------------------------------------------

 

 01.24   Sheep and Goats, Breeding        5         5            5

 

 ----------------------------------------------------------------------

 

 01.3    Farm buildings except           25        20           25

 

         structures included in

 

         Class 01.4

 

 ----------------------------------------------------------------------

 

 01.4    Single purpose                  15     10***           15

 

         agricultural or

 

         horticultural structures

 

         (within the meaning of

 

         section 168(i)(13) of the

 

         Code)

 

 ----------------------------------------------------------------------

 

 10.0    Mining:

 

         Includes assets used in         10         7           10

 

         the mining and quarrying

 

         of metallic and

 

         nonmetallic minerals

 

         (including sand, gravel,

 

         stone, and clay) and the

 

         milling, beneficiation

 

         and other primary

 

         preparation of such

 

         materials.

 

 ----------------------------------------------------------------------

 

 13.0    Offshore Drilling:

 

         Includes assets used in        7.5         5          7.5

 

         offshore drilling for oil

 

         and gas such as floating,

 

         self-propelled and other

 

         drilling vessels, barges,

 

         platforms, and drilling

 

         equipment and support

 

         vessels such as tenders,

 

         barges, towboats and

 

         crewboats. Excludes oil

 

         and gas production

 

         assets.

 

 ----------------------------------------------------------------------

 

 13.1    Drilling of Oil and Gas

 

         Wells:

 

         Includes assets used in          6         5            6

 

         the drilling of onshore

 

         oil and gas wells and the

 

         provision of geophysical

 

         and other exploration

 

         services; and the

 

         provision of such oil and

 

         gas field services as

 

         chemical treatment,

 

         plugging and abandoning

 

         of wells and cementing or

 

         perforating well casings.

 

         Does not include assets

 

         used in the performance

 

         of any of these

 

         activities and services

 

         by integrated petroleum

 

         and natural gas producers

 

         for their own account.

 

 ----------------------------------------------------------------------

 

 13.2    Exploration for and

 

         Production of Petroleum

 

         and Natural Gas Deposits:

 

         Includes assets used by         14         7           14

 

         petroleum and natural gas

 

         producers for drilling of

 

         wells and production of

 

         petroleum and natural

 

         gas, including gathering

 

         pipelines and related

 

         storage facilities. Also

 

         includes petroleum and

 

         natural gas offshore

 

         transportation facilities

 

         used by producers and

 

         others consisting of

 

         platforms (other than

 

         drilling platforms

 

         classified in Class

 

         13.0), compression or

 

         pumping equipment, and

 

         gathering and

 

         transmission lines to the

 

         first onshore

 

         transshipment facility.

 

         The assets used in the

 

         first onshore

 

         transshipment facility

 

         are also included and

 

         consist of separation

 

         equipment (used for

 

         separation of natural

 

         gas, liquids, and in

 

         Class 49.23), and liquid

 

         holding or storage

 

         facilities (other than

 

         those classified in Class

 

         49.25). Does not include

 

         support vessels.

 

 ----------------------------------------------------------------------

 

 13.3    Petroleum Refining:

 

         Includes assets used for        16        10           16

 

         the distillation,

 

         fractionation, and

 

         catalytic cracking of

 

         crude petroleum into

 

         gasoline and its other

 

         components.

 

 ----------------------------------------------------------------------

 

 15.0    Construction:

 

         Includes assets used in          6         5            6

 

         construction by general

 

         building, special trade,

 

         heavy and marine

 

         construction contractors,

 

         operative and investment

 

         builders, real estate

 

         subdividers and

 

         developers, and others

 

         except railroads.

 

 ----------------------------------------------------------------------

 

 20.1    Manufacture of Grain and

 

         Grain Mill Products:

 

         Includes assets used in         17        10           17

 

         the production of flours,

 

         cereals, livestock feeds,

 

         and other grain and grain

 

         mill products.

 

 ----------------------------------------------------------------------

 

 20.2    Manufacture of Sugar and

 

         Sugar Products:

 

         Includes assets used in         18        10           18

 

         the production of raw

 

         sugar, syrup, or finished

 

         sugar from sugar cane or

 

         sugar beets.

 

 ----------------------------------------------------------------------

 

 20.3    Manufacture of Vegetable

 

         Oils and Vegetable Oil

 

         Products:

 

         Includes assets used in         18        10           18

 

         the production of oil

 

         from vegetable materials

 

         and the manufacture of

 

         related vegetable oil

 

         products.

 

 ----------------------------------------------------------------------

 

 20.4    Manufacture of Other Food

 

         and Kindred Products:

 

         Includes assets used in         12         7           12

 

         the production of foods

 

         and beverages not

 

         included in classes 20.1,

 

         20.2 and 20.3.

 

 ----------------------------------------------------------------------

 

 20.5    Manufacture of Food and

 

         Beverages -- Special

 

         Handling Devices:

 

         Includes assets defined          4         3            4

 

         as specialized materials

 

         handling devices such as

 

         returnable pallets,

 

         palletized containers,

 

         and fish processing

 

         equipment including

 

         boxes, baskets, carts,

 

         and flaking trays used in

 

         activities as defined in

 

         classes 20.1, 20.2, 20.3

 

         and 20.4. Does not

 

         include general purpose

 

         small tools such as

 

         wrenches and drills, both

 

         hand and power-driven,

 

         and other general purpose

 

         equipment such as

 

         conveyors, transfer

 

         equipment, and materials

 

         handling devices.

 

 ----------------------------------------------------------------------

 

 21.0    Manufacture of Tobacco

 

         and Tobacco Products:

 

         Includes assets used in         15         7           15

 

         the production of

 

         cigarettes, cigars,

 

         smoking and chewing

 

         tobacco, snuff, and other

 

         tobacco products.

 

 ----------------------------------------------------------------------

 

 22.1    Manufacture of Knitted

 

         Goods:

 

         Includes assets used in        7.5         5          7.5

 

         the production of knitted

 

         and netted fabrics and

 

         lace. Assets used in yarn

 

         preparation, bleaching,

 

         dyeing, printing, and

 

         other similar finishing

 

         processes, texturing, and

 

         packaging, are elsewhere

 

         classified.

 

 ----------------------------------------------------------------------

 

 22.2    Manufacture of Yarn,

 

         Thread, and Woven Fabric:

 

         Includes assets used in         11         7           11

 

         the production of spun

 

         yarns including the

 

         preparing, blending,

 

         spinning, and twisting of

 

         fibers into yarns and

 

         threads, the preparation

 

         of yarns such as

 

         twisting, warping, and

 

         winding, the production

 

         of covered elastic yarn

 

         and thread, cordage,

 

         woven fabric, tire

 

         fabric, braided fabric,

 

         twisted jute for

 

         packaging, mattresses,

 

         pads, sheets, and

 

         industrial belts, and the

 

         processing of textile

 

         mill waste to recover

 

         fibers, flocks, and

 

         shoddies. Assets used to

 

         manufacture carpets,

 

         man-made fibers, and

 

         nonwovens, and assets

 

         used in texturing,

 

         bleaching, dyeing,

 

         printing, and other

 

         similar finishing

 

         processes, are elsewhere

 

         classified.

 

 ----------------------------------------------------------------------

 

 22.3    Manufacture of Carpets

 

         and Dyeing, Finishing,

 

         and Packaging of Textile

 

         Products and Manufacture

 

         of Medical and Dental

 

         Supplies:

 

         Includes assets used in          9         5            9

 

         the production of

 

         carpets, rugs, mats,

 

         woven carpet backing,

 

         chenille, and other

 

         tufted products, and

 

         assets used in the

 

         joining together of

 

         backing with carpet yarn

 

         or fabric. Includes

 

         assets used in washing,

 

         scouring, bleaching,

 

         dyeing, printing, drying,

 

         and similar finishing

 

         processes applied to

 

         textile fabrics, yarns,

 

         threads, and other

 

         textile goods. Includes

 

         assets used in the

 

         production and packaging

 

         of textile products,

 

         other than apparel, by

 

         creasing, forming,

 

         trimming, cutting, and

 

         sewing, such as the

 

         preparation of carpet and

 

         fabric samples, or

 

         similar joining together

 

         processes (other than the

 

         production of scrim

 

         reinforced paper products

 

         and laminated paper

 

         products) such as the

 

         sewing and folding of

 

         hosiery and panty hose,

 

         and the creasing,

 

         folding, trimming, and

 

         cutting of fabrics to

 

         produce nonwoven

 

         products, such as

 

         disposable diapers and

 

         sanitary products. Also

 

         includes assets used in

 

         the production of medical

 

         and dental supplies other

 

         than drugs and medicines.

 

         Assets used in the

 

         manufacture of nonwoven

 

         carpet backing, and hard

 

         surface floor covering

 

         such as tile, rubber, and

 

         cork, are elsewhere

 

         classified.

 

 ----------------------------------------------------------------------

 

 22.4    Manufacture of Textile

 

         Yarns:

 

         Includes assets used in          8         5            8

 

         the processing of yarns

 

         to impart bulk and/or

 

         stretch properties to the

 

         yarn. The principal

 

         machines involved are

 

         falsetwist, draw,

 

         beam-to-beam, and stuffer

 

         box texturing equipment

 

         and related highspeed

 

         twisters and winders.

 

         Assets, as described

 

         above, which are used to

 

         further process man-made

 

         fibers are elsewhere

 

         classified when located

 

         in the same plant in an

 

         integrated operation with

 

         man-made fiber producing

 

         assets. Assets used to

 

         manufacture man-made

 

         fibers and assets used in

 

         bleaching, dyeing,

 

         printing, and other

 

         similar finishing

 

         processes, are elsewhere

 

         classified.

 

 ----------------------------------------------------------------------

 

 22.5    Manufacture of Nonwoven

 

         Fabrics:

 

         Includes assets used in         10         7           10

 

         the production of

 

         nonwoven fabrics, felt

 

         goods including felt

 

         hats, padding, batting,

 

         wadding, oakum, and

 

         fillings, from new

 

         materials and from

 

         textile mill waste.

 

         Nonwoven fabrics are

 

         defined as fabrics (other

 

         than reinforced and

 

         laminated composites

 

         consisting of nonwovens

 

         and other products)

 

         manufactured by bonding

 

         natural and/or synthetic

 

         fibers and/or filaments

 

         by means of induced

 

         mechanical interlocking,

 

         fluid entanglement,

 

         chemical adhesion,

 

         thermal or solvent

 

         reaction, or by

 

         combination thereof other

 

         than natural hydration

 

         bonding as ocurs with

 

         natural cellulose fibers.

 

         Such means include resin

 

         bonding, web bonding, and

 

         melt bonding.

 

         Specifically includes

 

         assets used to make

 

         flocked and needle

 

         punched products other

 

         than carpets and rugs.

 

         Assets, as described

 

         above, which are used to

 

         manufacture nonwovens are

 

         elsewhere classified when

 

         located in the same plant

 

         in an integrated

 

         operation with man-made

 

         fiber producing assets.

 

         Assets used to

 

         manufacture man-made

 

         fibers and assets used in

 

         bleaching, dyeing,

 

         printing, and other

 

         similar finishing

 

         processes, are elsewhere

 

         classified.

 

 ----------------------------------------------------------------------

 

 23.0    Manufacture of Apparel

 

         and Other Finished

 

         Products:

 

         Includes assets used in          9         5            9

 

         the production of

 

         clothing and fabricated

 

         textile products by the

 

         cutting and sewing of

 

         woven fabrics, other

 

         textile products, and

 

         furs; but does not

 

         include assets used in

 

         the manufacture of

 

         apparel from rubber and

 

         leather.

 

 ----------------------------------------------------------------------

 

 24.1    Cutting of Timber:

 

         Includes logging                 6         5            6

 

         machinery and equipment

 

         and roadbuilding

 

         equipment used by logging

 

         and sawmill operators and

 

         pulp manufacturers for

 

         their own account.

 

 ----------------------------------------------------------------------

 

 24.2    Sawing of Dimensional

 

         Stock from Logs:

 

         Includes machinery and          10         7           10

 

         equipment installed in

 

         permanent or well

 

         established sawmills.

 

 ----------------------------------------------------------------------

 

 24.3    Sawing of Dimensional

 

         Stock from Logs:

 

         Includes machinery and           6         5            6

 

         equipment in sawmills

 

         characterized by

 

         temporary foundations and

 

         a lack, or minimum

 

         amount, of

 

         lumberhandling, drying,

 

         and residue disposal

 

         equipment and facilities.

 

 ----------------------------------------------------------------------

 

 24.4    Manufacture of Wood

 

         Products, and Furniture:

 

         Includes assets used in         10         7           10

 

         the production of

 

         plywood, hardboard,

 

         flooring, veneers,

 

         furniture, and other wood

 

         products, including the

 

         treatment of poles and

 

         timber.

 

 ----------------------------------------------------------------------

 

 26.1    Manufacture of Pulp and

 

         Paper:

 

         Includes assets for pulp        13         7           13

 

         materials handling and

 

         storage, pulp mill

 

         processing, bleach

 

         processing, paper and

 

         paperboard manufacturing,

 

         and on-line finishing.

 

         Includes pollution

 

         control assets and all

 

         land improvements

 

         associated with the

 

         factory site or

 

         production process such

 

         as effluent ponds and

 

         canals, provided such

 

         improvements are

 

         depreciable but does not

 

         include buildings and

 

         structural components as

 

         defined in section 1.48-1

 

         (e)(1) of the

 

         regulations. Includes

 

         steam and chemical

 

         recovery boiler systems,

 

         with any rated capacity,

 

         used for the recovery and

 

         regeneration of chemicals

 

         used in manufacturing.

 

         Does not include assets

 

         used either in pulpwood

 

         logging, or in the

 

         manufacture of hardboard.

 

 ----------------------------------------------------------------------

 

 26.2    Manufacture of Converted

 

         Paper, Paperboard, and

 

         Pulp Products:

 

         Includes assets used for        10         7           10

 

         modification, or

 

         remanufacture of paper

 

         and pulp into converted

 

         products, such as paper

 

         coated off the paper

 

         machine, paper bags,

 

         paper boxes, cartons and

 

         envelopes. Does not

 

         include assets used for

 

         manufacture of nonwovens

 

         that are elsewhere

 

         classified.

 

 ----------------------------------------------------------------------

 

 27.0    Printing, Publishing, and

 

         Allied Industries:

 

         Includes assets used in         11         7           11

 

         printing by one or more

 

         processes, such as

 

         letter-press,

 

         lithography, gravure, or

 

         screen; the performance

 

         of services for the

 

         printing trade, such as

 

         bookbinding, typesetting,

 

         engraving,

 

         photo-engraving, and

 

         electrotyping; and the

 

         publication of

 

         newspapers, books, and

 

         periodicals.

 

 ----------------------------------------------------------------------

 

 28.0    Manufacture of Chemicals

 

         and Allied Products:

 

         Includes assets used to        9.5         5          9.5

 

         manufacture basic organic

 

         and inorganic chemicals;

 

         chemical products to be

 

         used in further

 

         manufacture, such as

 

         synthetic fibers and

 

         plastics materials; and

 

         finished chemical

 

         products. Includes assets

 

         used to further process

 

         man-made fibers, to

 

         manufacture plastic film,

 

         and to manufacture

 

         nonwoven fabrics, when

 

         such assets are located

 

         in the same plant in an

 

         integrated operation with

 

         chemical products

 

         producing assets. Also

 

         includes assets used to

 

         manufacture photographic

 

         supplies, such as film,

 

         photographic paper,

 

         sensitized photographic

 

         paper, and developing

 

         chemicals. Includes all

 

         land improvements

 

         associated with plant

 

         site or production

 

         processes, such as

 

         effluent ponds and

 

         canals, provided such

 

         land improvements are

 

         depreciable but does not

 

         include buildings and

 

         structural components as

 

         defined in section 1.48-1

 

         (e) of the regulations.

 

         Does not include assets

 

         used in the manufacture

 

         of finished rubber and

 

         plastic products or in

 

         the production of natural

 

         gas products, butane,

 

         propane, and by-products

 

         of natural gas production

 

         plants.

 

 ----------------------------------------------------------------------

 

 30.1    Manufacture of Rubber

 

         Products:

 

         Includes assets used for        14         7           14

 

         the production of

 

         products from natural,

 

         synthetic, or reclaimed

 

         rubber, gutta percha,

 

         balata, or gutta siak,

 

         such as tires, tubes,

 

         rubber footwear,

 

         mechanical rubber goods,

 

         heels and soles,

 

         flooring, and rubber

 

         sundries; and in the

 

         recapping, retreading,

 

         and rebuilding of tires.

 

 ----------------------------------------------------------------------

 

 30.11   Manufacture of Rubber

 

         Products -- Special Tools

 

         and Devices:

 

         Includes assets defined          4         3            4

 

         as special tools, such as

 

         jigs, dies, mandrels,

 

         molds, lasts, patterns,

 

         specialty containers,

 

         pallets, shells; and tire

 

         molds, and accessory

 

         parts such as rings and

 

         insert plates used in

 

         activities as defined in

 

         class 30.1. Does not

 

         include tire building

 

         drums and accessory parts

 

         and general purpose small

 

         tools such as wrenches

 

         and drills, both power

 

         and hand-driven, and

 

         other general purpose

 

         equipment such as

 

         conveyors and transfer

 

         equipment.

 

 ----------------------------------------------------------------------

 

 30.2    Manufacture of Finished

 

         Plastic Products:

 

         Includes assets used in         11         7           11

 

         the manufacture of

 

         plastics products and the

 

         molding of primary

 

         plastics for the trade.

 

         Does not include assets

 

         used in the manufacture

 

         of basic plastics

 

         materials nor the

 

         manufacture of phonograph

 

         records.

 

 ----------------------------------------------------------------------

 

 30.21   Manufacture of Finished

 

         Plastic Products -- Special

 

         Tools:

 

         Includes assets defined        3.5         3          3.5

 

         as special tools, such as

 

         jigs, dies, fixtures,

 

         molds, patterns, gauges,

 

         and specialty transfer

 

         and shipping devices,

 

         used in activities as

 

         defined in class 30.2.

 

         Special tools are

 

         specifically designed for

 

         the production or

 

         processing of particular

 

         parts and have no

 

         significant utilitarian

 

         value and cannot be

 

         adapted to further or

 

         different use after

 

         changes or improvements

 

         are made in the model

 

         design of the particular

 

         part produced by the

 

         special tools. Does not

 

         include general purpose

 

         small tools such as

 

         wrenches and drills, both

 

         hand and power-driven,

 

         and other general purpose

 

         equipment such as

 

         conveyors, transfer

 

         equipment, and materials

 

         handling devices.

 

 ----------------------------------------------------------------------

 

 31.0    Manufacture of Leather

 

         and Leather Products:

 

         Includes assets used in         11         7           11

 

         the tanning, currying,

 

         and finishing of hides

 

         and skins; the processing

 

         of fur pelts; and the

 

         manufacture of finished

 

         leather products, such as

 

         footwear, belting,

 

         apparel, and luggage.

 

 ----------------------------------------------------------------------

 

 32.1    Manufacture of Glass

 

         Products:

 

         Includes assets used in         14         7           14

 

         the production of flat,

 

         blown, or pressed

 

         products of glass, such

 

         as float and window

 

         glass, glass containers,

 

         glassware and fiberglass.

 

         Does not include assets

 

         used in the manufacture

 

         of lenses.

 

 ----------------------------------------------------------------------

 

 32.11   Manufacture of Glass

 

         Products -- Special

 

         Tools:

 

         Includes assets defined        2.5         3          2.5

 

         as special tools such as

 

         molds, patterns, pallets,

 

         and specialty transfer

 

         and shipping devices such

 

         as steel racks to

 

         transport automotive

 

         glass, used in activities

 

         as defined in class 32.1.

 

         Special tools are

 

         specifically designed for

 

         the production or

 

         processing of particular

 

         parts and have no

 

         significant utilitarian

 

         value and cannot be

 

         adapted to further or

 

         different use after

 

         changes or improvements

 

         are made in the model

 

         design of the particular

 

         part produced by the

 

         special tools. Does not

 

         include general purpose

 

         small tools such as

 

         wrenches and drills, both

 

         hand and power-driven,

 

         and other general purpose

 

         equipment such as

 

         conveyors, transfer

 

         equipment, and materials

 

         handling devices.

 

 ----------------------------------------------------------------------

 

 32.2    Manufacture of Cement:

 

         Includes assets used in         20        15           20

 

         the production of cement,

 

         but does not include

 

         assets used in the

 

         manufacture of concrete

 

         and concrete products nor

 

         in any mining or

 

         extraction process.

 

 ----------------------------------------------------------------------

 

 32.3    Manufacture of Other

 

         Stone and Clay Products:

 

         Includes assets used in         15         7           15

 

         the manufacture of

 

         products from materials

 

         in the form of clay and

 

         stone, such as brick,

 

         tile, and pipe; pottery

 

         and related products,

 

         such as vitreous-china,

 

         plumbing fixtures,

 

         earthenware and ceramic

 

         insulating materials; and

 

         also includes assets used

 

         in manufacture of

 

         concrete and concrete

 

         products. Does not

 

         include assets used in

 

         any mining or extraction

 

         processes.

 

 ----------------------------------------------------------------------

 

 33.2    Manufacture of Primary

 

         Nonferrous Metals:

 

         Includes assets used in         14         7           14

 

         the smelting, refining,

 

         and electrolysis of

 

         nonferrous metals from

 

         ore, pig, or scrap, the

 

         rolling, drawing, and

 

         alloying of nonferrous

 

         metals; the manufacture

 

         of castings, forgings,

 

         and other basic products

 

         of nonferrous metals; and

 

         the manufacture of nails,

 

         spikes, structural shapes,

 

         tubing, wire, and cable.

 

 ----------------------------------------------------------------------

 

 33.21   Manufacture of Primary

 

         Nonferrous Metals --

 

         Special Tools:

 

         Includes assets defined        6.5         5          6.5

 

         as special tools such as

 

         dies, jigs, molds,

 

         patterns, fixtures,

 

         gauges, and drawings

 

         concerning such special

 

         tools used in the

 

         activities as defined in

 

         class 33.2, Manufacture

 

         of Primary Nonferrous

 

         Metals. Special tools are

 

         specifically designed for

 

         the production or

 

         processing of particular

 

         products or parts and

 

         have no significant

 

         utilitarian value and

 

         cannot be adapted to

 

         further or different use

 

         after changes or

 

         improvements are made in

 

         the model design of the

 

         particular part produced

 

         by the special tools.

 

         Does not include general

 

         purpose small tools such

 

         as wrenches and drills,

 

         both hand and

 

         power-driven, and other

 

         general purpose equipment

 

         such as conveyors,

 

         transfer equipment, and

 

         materials handling

 

         devices. Rolls, mandrels

 

         and refractories are not

 

         included in class 33.21

 

         but are included in class

 

         33.2.

 

 ----------------------------------------------------------------------

 

 33.3    Manufacture of Foundry

 

         Products:

 

         Includes assets used in         14         7           14

 

         the casting of iron and

 

         steel, including related

 

         operations such as

 

         molding and coremaking.

 

         Also includes assets used

 

         in the finishing of

 

         castings and

 

         patternmaking when

 

         performed at the foundry,

 

         all special tools and

 

         related land

 

         improvements.

 

 ----------------------------------------------------------------------

 

 33.4    Manufacture of Primary

 

         Steel Mill Products:

 

         Includes assets used in         15         7           15

 

         the smelting, reduction,

 

         and refining of iron and

 

         steel from ore, pig, or

 

         scrap; the rolling,

 

         drawing and alloying of

 

         steel; the manufacture of

 

         nails, spikes, structural

 

         shapes, tubing, wire, and

 

         cable. Includes assets

 

         used by steel service

 

         centers, ferrous metal

 

         forges, and assets used

 

         in coke production,

 

         regardless of ownership.

 

         Also includes related

 

         land improvements and all

 

         special tools used in the

 

         above activities.

 

 ----------------------------------------------------------------------

 

 34.0    Manufacture of Fabricated

 

         Metal Products:

 

         Includes assets used in         12         7           12

 

         the production of metal

 

         cans, tinware,

 

         fabricated structural

 

         metal products, metal

 

         stampings, and other

 

         ferrous and nonferrous

 

         metal and wire products

 

         not elsewhere classified.

 

         Does not include assets

 

         used to manufacture

 

         non-electric heating

 

         apparatus.

 

 ----------------------------------------------------------------------

 

 34.01   Manufacture of Fabricated

 

         Metal Products -- Special

 

         Tools:

 

         Includes assets defined          3         3            3

 

         as special tools such as

 

         dies, jigs, molds,

 

         patterns, fixtures,

 

         gauges, and returnable

 

         containers and drawings

 

         concerning such special

 

         tools used in the

 

         activities as defined in

 

         class 34.0. Special tools

 

         are specifically designed

 

         for the production or

 

         processing of particular

 

         machine components,

 

         products, or parts, and

 

         have no significant

 

         utilitarian value and

 

         cannot be adapted to

 

         further or different use

 

         after changes or

 

         improvements are made in

 

         the model design of the

 

         particular part produced

 

         by the special tools.

 

         Does not include general

 

         small tools such as

 

         wrenches and drills, both

 

         hand and power-driven,

 

         and other general purpose

 

         equipment such as

 

         conveyors, transfer

 

         equipment, and materials

 

         handling devices.

 

 ----------------------------------------------------------------------

 

 35.0    Manufacture of Electrical

 

         and Non-Electrical

 

         Machinery and Other

 

         Mechanical Products:

 

         Includes assets used to         10         7           10

 

         manufacture or rebuild

 

         finished machinery and

 

         equipment and replacement

 

         parts thereof such as

 

         machine tools, general

 

         industrial and special

 

         industry machinery,

 

         electrical power

 

         generation, transmission,

 

         and distribution systems,

 

         space heating, cooling,

 

         and refrigeration

 

         systems, commercial and

 

         home appliances, farm and

 

         garden machinery,

 

         construction machinery,

 

         mining and oil field

 

         machinery, internal

 

         combustion engines

 

         (except those elsewhere

 

         classified), turbines

 

         (except those that power

 

         airborne vehicles),

 

         batteries, lamps and

 

         lighting fixtures, carbon

 

         and graphite products,

 

         and electromechanical and

 

         mechanical products

 

         including business

 

         machines, instruments,

 

         watches and clocks,

 

         vending and amusement

 

         machines, photographic

 

         equipment, medical and

 

         dental equipment and

 

         appliances, and

 

         ophthalmic goods.

 

         Includes assets used by

 

         manufacturers or

 

         rebuilders of such

 

         finished machinery and

 

         equipment in activities

 

         elsewhere classified such

 

         as the manufacture of

 

         castings, forgings,

 

         rubber and plastic

 

         products, electronic

 

         subassemblies or other

 

         manufacturing activities

 

         if the interim products

 

         are used by the same

 

         manufacturer primarily in

 

         the manufacture,

 

         assembly, or rebuilding

 

         of such finished

 

         machinery and equipment.

 

         Does not include assets

 

         used in mining, assets

 

         used in the manufacture

 

         of primary ferrous and

 

         nonferrous metals, assets

 

         included in class 00.11

 

         through 00.4 and assets

 

         elsewhere classified.

 

 ----------------------------------------------------------------------

 

 36.0    Manufacture of Electronic

 

         Components, Products, and

 

         Systems:

 

         Includes assets used in          6         5            6

 

         the manufacture of

 

         electronic communication,

 

         computation,

 

         instrumentation and

 

         control system, including

 

         airborne applications;

 

         also includes assets used

 

         in the manufacture of

 

         electronic products such

 

         as frequency and

 

         amplitude modulated

 

         transmitters and

 

         receivers, electronic

 

         switching stations,

 

         television cameras, video

 

         recorders, record players

 

         and tape recorders,

 

         computers and computer

 

         peripheral machines, and

 

         electronic instruments,

 

         watches, and clocks; also

 

         includes assets used in

 

         the manufacture of

 

         components, provided

 

         their primary use is

 

         products and systems

 

         defined above such as

 

         electron tubes,

 

         capacitors, coils,

 

         resistors, printed

 

         circuit substrates,

 

         switches, harness cables,

 

         lasers, fiber optic

 

         devices, and magnetic

 

         media devices.

 

         Specifically excludes

 

         assets used to

 

         manufacture electronic

 

         products and components,

 

         photocopiers,

 

         typewriters, postage

 

         meters and other

 

         electromechanical and

 

         mechanical business

 

         machines and instruments

 

         that are elsewhere

 

         classified. Does not

 

         include semiconductor

 

         manufacturing equipment

 

         included in class 36.1.

 

 ----------------------------------------------------------------------

 

 36.1    Any Semiconductor

 

         Manufacturing Equipment          5         5            5

 

 ----------------------------------------------------------------------

 

 37.11   Manufacture of Motor

 

         Vehicles:

 

         Includes assets used in         12         7           12

 

         the manufacture and

 

         assembly of finished

 

         automobiles, trucks,

 

         trailers, motor homes, and

 

         buses. Does not include

 

         assets used in mining,

 

         printing and publishing,

 

         production of primary

 

         metals, electricity, or

 

         steam, or the manufacture

 

         of glass, industrial

 

         chemicals, batteries, or

 

         rubber products, which are

 

         classified elsewhere.

 

         Includes assets used in

 

         manufacturing activities

 

         elsewhere classified other

 

         than those excluded above,

 

         where such activities are

 

         incidental to and an

 

         integral part of the

 

         manufacture and assembly

 

         of finished motor vehicles

 

         such as the manufacture of

 

         parts and subassemblies of

 

         fabricated metal products,

 

         electrical equipment,

 

         textiles, plastics,

 

         leather, and foundry and

 

         forging operations. Does

 

         not include any assets not

 

         classified in

 

         manufacturing activity

 

         classes, e.g., does not

 

         include any assets

 

         classified in asset

 

         guideline classes 00.11

 

         through 00.4. Activities

 

         will be considered

 

         incidental to the

 

         manufacture and assembly

 

         of finished motor vehicles

 

         only if 75 percent or more

 

         of the value of the

 

         products produced under

 

         one roof are used for the

 

         manufacture and assembly

 

         of finished motor

 

         vehicles. Parts that are

 

         produced as a normal

 

         replacement stock

 

         complement in connection

 

         with the manufacture and

 

         assembly of finished motor

 

         vehicles are considered

 

         used for the manufacture

 

         assembly of finished motor

 

         vehicles. Does not include

 

         assets used in the

 

         manufacture of component

 

         parts if these assets are

 

         used by taxpayers not

 

         engaged in the assembly of

 

         finished motor vehicles.

 

 ----------------------------------------------------------------------

 

 37.12   Manufacture of Motor

 

         Vehicles--Special Tools:

 

         Includes assets defined as       3         3            3

 

         special tools, such as

 

         jigs, dies, fixtures,

 

         molds, patterns, gauges,

 

         and specialty transfer and

 

         shipping devices, owned by

 

         manufacturers of finished

 

         motor vehicles and used in

 

         qualified activities as

 

         defined in class 37.11.

 

         Special tools are

 

         specifically designed for

 

         the production or

 

         processing of particular

 

         motor vehicle components

 

         and have no significant

 

         utilitarian value, and

 

         cannot be adapted to

 

         further or different use,

 

         after changes or

 

         improvements are made in

 

         the model design of the

 

         particular part produced

 

         by the special tools. Does

 

         not include general

 

         purpose small tools such

 

         as wrenches and drills,

 

         both hand and powerdriven,

 

         and other general purpose

 

         equipment such as

 

         conveyors, transfer

 

         equipment, and materials

 

         handling devices.

 

 ----------------------------------------------------------------------

 

 37.2    Manufacture of Aerospace

 

         Products:

 

         Includes assets used in         10         7           10

 

         the manufacture and

 

         assembly of airborne

 

         vehicles and their

 

         component parts including

 

         hydraulic, pneumatic,

 

         electrical, and mechanical

 

         systems. Does not include

 

         assets used in the

 

         production of electronic

 

         airborne detection,

 

         guidance, control,

 

         radiation, computation,

 

         test, navigation, and

 

         communication equipment or

 

         the components thereof.

 

 ----------------------------------------------------------------------

 

 37.31   Ship and Boat Building

 

         Machinery and Equipment:

 

         Includes assets used in         12         7           12

 

         the manufacture and repair

 

         of ships, boats, caissons,

 

         marine drilling rigs, and

 

         special fabrications not

 

         included in asset classes

 

         37.32 and 37.33.

 

         Specifically includes all

 

         manufacturing and

 

         repairing machinery and

 

         equipment, including

 

         machinery and equipment

 

         used in the operation of

 

         assets included in asset

 

         class 37.32. Excludes

 

         buildings and their

 

         structural components.

 

 ----------------------------------------------------------------------

 

 37.32   Ship and Boat Building Dry

 

         Docks and Land

 

         Improvements:

 

         Includes assets used in         16        10           16

 

         the manufacture and repair

 

         of ships, boats, caissons,

 

         marine drilling rigs, and

 

         special fabrications not

 

         included in asset classes

 

         37.31 and 37.33.

 

         Specifically includes

 

         floating and fixed dry

 

         docks, ship basins,

 

         graving docks, shipways,

 

         piers, and all other land

 

         improvements such as

 

         water, sewer, and electric

 

         systems. Excludes

 

         buildings and their

 

         structural components.

 

 ----------------------------------------------------------------------

 

 37.33   Ship and Boat

 

         Building -- Special

 

         Tools:

 

         Includes assets defined as     6.5         5          6.5

 

         special tools such as

 

         dies, jigs, molds,

 

         patterns, fixtures,

 

         gauges, and drawings

 

         concerning such special

 

         tools used in the

 

         activities defined in

 

         classes 37.31 and 37.32.

 

         Special tools are

 

         specifically designed for

 

         the production or

 

         processing of particular

 

         machine components,

 

         products, or parts, and

 

         have no significant

 

         utilitarian value and

 

         cannot be adapted to

 

         further or different use

 

         after changes or

 

         improvements are made in

 

         the model design of the

 

         particular part produced

 

         by the special tools. Does

 

         not include general

 

         purpose small tools such

 

         as wrenches and drills,

 

         both hand and

 

         power-driven, and other

 

         general purpose equipment

 

         such as conveyors,

 

         transfer equipment, and

 

         materials handling

 

         devices.

 

 ----------------------------------------------------------------------

 

 37.41   Manufacture of

 

         Locomotives:

 

         Includes assets used in        11.5        7          11.5

 

         building or rebuilding

 

         railroad locomotives

 

         (including mining and

 

         industrial locomotives).

 

         Does not include assets of

 

         railroad transportation

 

         companies or assets of

 

         companies which

 

         manufacture components of

 

         locomotives but do not

 

         manufacture finished

 

         locomotives.

 

 ----------------------------------------------------------------------

 

 37.42   Manufacture of Railroad

 

         Cars:

 

         Includes assets used in         12         7           12

 

         building or rebuilding

 

         railroad freight or

 

         passenger cars (including

 

         rail transit cars). Does

 

         not include assets of

 

         railroad transportation

 

         companies or assets of

 

         companies which

 

         manufacture components of

 

         railroad cars but do not

 

         manufacture finished

 

         railroad cars.

 

 ----------------------------------------------------------------------

 

 39.0    Manufacture of Athletic,

 

         Jewelry, and Other Goods:

 

         Includes assets used in         12         7           12

 

         the production of jewelry;

 

         musical instruments; toys

 

         and sporting goods; motion

 

         picture and television

 

         films and tapes; and pens,

 

         pencils, office and art

 

         supplies, brooms, brushes,

 

         caskets, etc.

 

         Railroad Transportation:

 

         Classes with the prefix 40

 

         include the assets

 

         identified below that are

 

         used in the commercial and

 

         contract carrying of

 

         passengers and freight by

 

         rail. Assets of

 

         electrified railroads will

 

         be classified in a manner

 

         corresponding to that set

 

         forth below for railroads

 

         not independently operated

 

         as electric lines.

 

         Excludes the assets

 

         included in classes with

 

         the prefix beginning 00.1

 

         and 00.2 above, and also

 

         excludes any

 

         non-depreciable assets

 

         included in Interstate

 

         Commerce Commission

 

         accounts enumerated for

 

         this class.

 

 ----------------------------------------------------------------------

 

 40.1    Railroad Machinery and

 

         Equipment:

 

         Includes assets classified      14         7           14

 

         in the following

 

         Interstate Commerce

 

         Commission accounts:

 

         Roadway accounts:

 

           (16) Station and office

 

                buildings (freight

 

                handling machinery

 

                and equipment only)

 

           (25) TOFC/COFC terminals

 

                (freight handling

 

                machinery and

 

                equipment only)

 

           (26) Communication

 

                systems

 

           (27) Signals and

 

                interlockers

 

           (37) Roadway machines

 

           (44) Shop machinery

 

         Equipment accounts:

 

           (52) Locomotives

 

           (53) Freight train cars

 

           (54) Passenger train

 

                cars

 

           (57) Work equipment

 

 ----------------------------------------------------------------------

 

 40.2    Railroad Structures and

 

         Similar Improvements:

 

         Includes assets classified      30        20           30

 

         in the following

 

         Interstate Commerce

 

         Commission road accounts:

 

            (6) Bridges, trestles,

 

                and culverts

 

            (7) Elevated structures

 

           (13) Fences, snowsheds,

 

                and signs

 

           (16) Station and office

 

                buildings (stations

 

                and other operating

 

                structures only)

 

           (17) Roadway buildings

 

           (18) Water stations

 

           (19) Fuel stations

 

           (20) Shops and

 

                enginehouses

 

           (25) TOFC/COFC terminals

 

                (operating

 

                structures only)

 

           (31) Power transmission

 

                systems

 

           (35) Miscellaneous

 

                structures

 

           (39) Public improvements

 

                construction

 

 ----------------------------------------------------------------------

 

 40.3    Railroad Wharves and

 

         Docks:

 

         Includes assets classified      20        15           20

 

         in the following

 

         Interstate Commission

 

         Commerce accounts:

 

           (23) Wharves and docks

 

           (24) Coal and ore

 

                wharves

 

 ----------------------------------------------------------------------

 

 40.4    Railroad Track                  10         7           10

 

 ----------------------------------------------------------------------

 

 40.51   Railroad Hydraulic              50        20           50

 

         Electric Generating

 

         Equipment

 

 ----------------------------------------------------------------------

 

 40.52   Railroad Nuclear Electric       20        15           20

 

         Generating Equipment

 

 ----------------------------------------------------------------------

 

 40.53   Railroad Steam Electric         28        20           28

 

         Generating Equipment

 

 ----------------------------------------------------------------------

 

 40.54   Railroad Steam, Compressed      28        20           28

 

         Air, and Other Power Plan

 

         Equipment

 

 ----------------------------------------------------------------------

 

 41.0    Motor

 

         Transport--Passengers:

 

         Includes assets used in          8         5            8

 

         the urban and interurban

 

         commercial and contract

 

         carrying of passengers by

 

         road, except the

 

         transportation assets

 

         included in classes with

 

         the prefix 00.2.

 

 ----------------------------------------------------------------------

 

 42.0    Motor Transport --

 

         Freight:

 

         Includes assets used in          8         5            8

 

         the commercial and

 

         contract carrying of

 

         freight by road, except

 

         the transportation assets

 

         included in classes with

 

         the prefix 00.2.

 

 ----------------------------------------------------------------------

 

 44.0    Water Transportation:

 

         Includes assets used in         20        15           20

 

         the commercial and

 

         contract carrying of

 

         freight and passengers by

 

         water except the

 

         transportation assets

 

         included in classes with

 

         the prefix 00.2. Includes

 

         all related land

 

         improvements.

 

 ----------------------------------------------------------------------

 

 45.0    Air Transport:

 

         Includes assets (except         12         7           12

 

         helicopters) used in

 

         commercial and contract

 

         carrying of passengers

 

         and freight by air. For

 

         purposes of section

 

         1.167(a)-11(d)(2)(iv)(a)

 

         of the regulations,

 

         expenditures for "repair,

 

         maintenance,

 

         rehabilitation, or

 

         improvement," shall

 

         consist of direct

 

         maintenance expenses

 

         (irrespective of

 

         airworthiness provisions

 

         or charges) as defined by

 

         Civil Aeronautics Board

 

         uniform accounts 5200,

 

         maintenance burden

 

         (exclusive of expenses

 

         pertaining to maintenance

 

         buildings and

 

         improvements) as defined

 

         by Civil Aeronautics Board

 

         accounts 5300, and

 

         expenditures which are not

 

         "excluded additions" as

 

         defined in section

 

         1.167(a)-11(d)(2)(vi) of

 

         the regulations and which

 

         would be charged to

 

         property and equipment

 

         accounts in the Civil

 

         Aeronautics Board uniform

 

         system of accounts.

 

 ----------------------------------------------------------------------

 

 45.1    Air Transport

 

         (restricted):

 

         Includes each asset              6         5            6

 

         described in the

 

         description of class

 

         45.0 which was held by the

 

         taxpayer on April 15,

 

         1976, or is acquired by

 

         the taxpayer pursuant to a

 

         contract which was, on

 

         April 15, 1976, and at all

 

         times thereafter, binding

 

         on the taxpayer. This

 

         criterion of

 

         classification based on

 

         binding contract concept

 

         is to be applied in the

 

         same manner as under the

 

         general rules expressed in

 

         section 49(b)(1), (4), (5)

 

         and (8) of the Code (as in

 

         effect prior to its repeal

 

         by the Revenue Act of

 

         1978, section 312(c)(1),

 

         (d), 1978-3 C.B. 1, 60).

 

 ----------------------------------------------------------------------

 

 46.0    Pipeline Transportation:

 

         Includes assets used in         22        15           22

 

         the private, commercial,

 

         and contract carrying of

 

         petroleum, gas and other

 

         products by means of pipes

 

         and conveyors. The trunk

 

         lines and related storage

 

         facilities of integrated

 

         petroleum and natural gas

 

         producers are included in

 

         this class. Excludes

 

         initial clearing and

 

         grading land improvements

 

         as specified in Rev. Rul.

 

         72-403, 1972-2; C.B. 102,

 

         but includes all other

 

         related land improvements.

 

 ----------------------------------------------------------------------

 

         Telephone Communications:

 

         Includes the assets

 

         classified below and that

 

         are used in the provision

 

         of commercial and contract

 

         telephonic services such

 

         as:

 

 48.11   Telephone Central Office

 

         Buildings:

 

         Includes assets intended        45        20           45

 

         to house central office

 

         equipment, as defined in

 

         Federal Communications

 

         Commission Part 31 Account

 

         No. 212 whether section

 

         1245 or section 1250

 

         property.

 

 ----------------------------------------------------------------------

 

 48.12   Telephone Central Office

 

         Equipment:

 

         Includes central office         18        10           18

 

         switching and related

 

         equipment as defined in

 

         Federal Communications

 

         Commission Part 31 Account

 

         No. 221.

 

         Does not include

 

         computer-based telephone

 

         central office switching

 

         equipment included in

 

         class 48.121. Does not

 

         include private branch

 

         exchange (PBX) equipment.

 

 ----------------------------------------------------------------------

 

 48.121  Computer-based Telephone

 

         Central Office Switching

 

         Equipment:

 

         Includes equipment whose       9.5         5          9.5

 

         functions are those of a

 

         computer or peripheral

 

         equipment (as defined in

 

         section 168(i)(2)(B) of

 

         the Code) used in its

 

         capacity as telephone

 

         central office equipment.

 

         Does not include private

 

         exchange (PBX) equipment.

 

 ----------------------------------------------------------------------

 

 48.13   Telephone Station

 

         Equipment:

 

         Includes such station           10        7*          10*

 

         apparatus and connections

 

         as teletypewriters,

 

         telephones, booths,

 

         private exchanges, and

 

         comparable equipment as

 

         defined in Federal

 

         Communications Commission

 

         Part 31 Account No. 231

 

         232, and 234.

 

 ----------------------------------------------------------------------

 

 48.14   Telephone Distribution

 

         Plant:

 

         Includes such assets as         24        15           24

 

         pole lines, cable, aerial

 

         wire, underground

 

         conduits, and comparable

 

         equipment, and related

 

         land improvements as

 

         defined in Federal

 

         Communications Commission

 

         Part 31 Account Nos. 241,

 

         242.1, 242.2, 242.3,

 

         242.4, 243, and 244.

 

 ----------------------------------------------------------------------

 

 48.2    Radio and Television

 

         Broadcastings:

 

         Includes assets used in          6         5            6

 

         radio and television

 

         broadcasting, except

 

         transmitting towers.

 

         Telegraph, Ocean Cable,

 

         and Satellite

 

         Communications (TOCSC)

 

         includes

 

         communications-related

 

         assets used to provide

 

         domestic and international

 

         radio-telegraph,

 

         wire-telegraph,

 

         ocean-cable, and satellite

 

         communications services;

 

         also includes related land

 

         improvements. If property

 

         described in Classes

 

         48.31-48.45 is comparable

 

         to telephone distribution

 

         plant described in Class

 

         48.14 and used for 2-way

 

         exchange of voice and data

 

         communication which is the

 

         equivalent of telephone

 

         communication, such

 

         property is assigned a

 

         class life of 24 years

 

         under this revenue

 

         procedure. Comparable

 

         equipment does not include

 

         cable television equipment

 

         used primarily for 1-way

 

         communication.

 

 ----------------------------------------------------------------------

 

 48.31   TOCSC -- Electric Power

 

         Generating and

 

         Distribution Systems:

 

         Includes assets used in         19        10           19

 

         the provision of electric

 

         power by generation,

 

         modulation, rectification,

 

         channelization, control,

 

         and distribution. Does not

 

         include these assets when

 

         they are installed on

 

         customers premises.

 

 ----------------------------------------------------------------------

 

 48.32   TOCSC -- High Frequency

 

         Radio and Microwave

 

         Systems:

 

         Includes assets such as         13         7           13

 

         transmitters and

 

         receivers, antenna

 

         supporting structures,

 

         antennas, transmission

 

         lines from equipment to

 

         antenna, transmitter

 

         cooling systems, and

 

         control and amplification

 

         equipment. Does not

 

         include cable and

 

         long-line systems.

 

 ----------------------------------------------------------------------

 

 48.33   TOCSC -- Cable and

 

         Long-line Systems:

 

         Includes assets such as       26.5        20         26.5

 

         transmission lines, pole

 

         lines, ocean cables,

 

         buried cable and conduit,

 

         repeaters, repeater

 

         stations, and other

 

         related assets. Does not

 

         include high frequency

 

         radio or microwave

 

         systems.

 

 ----------------------------------------------------------------------

 

 48.34   TOCSC -- Central Office

 

         Control Equipment:

 

         Includes assets for           16.5        10         16.5

 

         general control,

 

         switching, and monitoring

 

         of communications signals

 

         including

 

         electromechanical

 

         switching and channeling

 

         apparatus, multiplexing

 

         equipment patching and

 

         monitoring facilities,

 

         in-house cabling,

 

         teleprinter equipment,

 

         and associated site

 

         improvements.

 

 ----------------------------------------------------------------------

 

 48.35   TOCSC -- Computerized

 

         Switching, Channeling, and

 

         Associated Control

 

         Equipment:

 

         Includes central office       10.5         7         10.5

 

         switching computers,

 

         interfacing computers,

 

         other associated

 

         specialized control

 

         equipment, and site

 

         improvements.

 

 ----------------------------------------------------------------------

 

 48.36   TOCSC -- Satellite Ground

 

         Segment Property:

 

         Includes assets such as         10         7           10

 

         fixed earth station

 

         equipment, antennas,

 

         satellite communications

 

         equipment, and interface

 

         equipment used in

 

         satellite communications.

 

         Does not include general

 

         purpose equipment or

 

         equipment used in

 

         satellite space segment

 

         property.

 

 ----------------------------------------------------------------------

 

 48.37   TOCSC -- Satellite Space

 

         Segment Property:

 

         Includes satellites and          8         5            8

 

         equipment used for

 

         telemetry, tracking,

 

         control, and monitoring

 

         when used in satellite

 

         communications.

 

 ----------------------------------------------------------------------

 

 48.38   TOCSC -- Equipment

 

         Installed on Customer's

 

         Premises:

 

         Includes assets installed       10         7           10

 

         on customer's premises,

 

         such as computers,

 

         terminal equipment, power

 

         generation and

 

         distribution systems,

 

         private switching center,

 

         teleprinters, facsimile

 

         equipment and other

 

         associated and related

 

         equipment.

 

 ----------------------------------------------------------------------

 

 48.39   TOCSC -- Support and

 

         Service Equipment:

 

         Includes assets used to       13.5         7         13.5

 

         support but not engage in

 

         communications. Includes

 

         store, warehouse and shop

 

         tools, and test and

 

         laboratory assets.

 

         Cable Television (CATV):

 

         Includes

 

         communications-related

 

         assets used to provide

 

         cable television community

 

         antenna television

 

         services. Does not include

 

         assets used to provide

 

         subscribers with two-way

 

         communications services.

 

 ----------------------------------------------------------------------

 

 48.41   CATV -- Headend:

 

         Includes assets such as         11         7           11

 

         towers, antennas,

 

         preamplifiers, converters,

 

         modulation equipment, and

 

         program non-duplication

 

         systems. Does not include

 

         headend buildings and

 

         program origination

 

         assets.

 

 ----------------------------------------------------------------------

 

 48.42   CATV -- Subscriber

 

         Connection and

 

         Distribution Systems:

 

         Includes assets such as         10         7           10

 

         trunk and feeder cable,

 

         connecting hardware,

 

         amplifiers, power

 

         equipment, passive

 

         devices, directional taps,

 

         pedestals, pressure taps,

 

         drop cables, matching

 

         transformers, multiple set

 

         connector equipment, and

 

         convertors.

 

 ----------------------------------------------------------------------

 

 48.43   CATV -- Program

 

         Origination:

 

         Includes assets such as          9         5            9

 

         cameras, film chains,

 

         video tape recorders,

 

         lighting, and remote

 

         location equipment

 

         excluding vehicles. Does

 

         not include buildings and

 

         their structural

 

         components.

 

 ----------------------------------------------------------------------

 

 48.44   CATV -- Service and Test:

 

         Includes assets such as        8.5         5          8.5

 

         oscilloscopes, field

 

         strength meters, spectrum

 

         analyzers, and cable

 

         testing equipment, but

 

         does not include vehicles.

 

 ----------------------------------------------------------------------

 

 48.45   CATV -- Microwave Systems:

 

         Includes assets such as        9.5         5          9.5

 

         towers, antennas,

 

         transmitting and receiving

 

         equipment, and broad band

 

         microwave assets is used

 

         in the provision of cable

 

         television services. Does

 

         not include assets used in

 

         the provision of common

 

         carrier services.

 

 ----------------------------------------------------------------------

 

         Electric, Gas, Water and

 

         Steam, Utility Services:

 

         Includes assets used in         50        20           50

 

         the production,

 

         transmission and

 

         distribution of

 

         electricity, gas, steam,

 

         or water for sale

 

         including related land

 

         improvements.

 

 49.11   Electric Utility Hydraulic

 

         Production Plant:

 

         Includes assets used in

 

         the hydraulic power

 

         production of electricity

 

         for sale, including

 

         related land improvements,

 

         such as dams, flumes,

 

         canals, and waterways.

 

 ----------------------------------------------------------------------

 

 49.12   Electric Utility Nuclear

 

         Production Plant:

 

         Includes assets used in         20        15           20

 

         the nuclear power

 

         production and electricity

 

         for sale and related land

 

         improvements. Does not

 

         include nuclear fuel

 

         assemblies.

 

 ----------------------------------------------------------------------

 

 49.121  Electric Utility Nuclear

 

         Fuel Assemblies:

 

         Includes initial core and        5          5           5

 

         replacement core nuclear

 

         fuel assemblies (i.e., the

 

         composite of fabricated

 

         nuclear fuel and

 

         container) when used in a

 

         boiling water, pressurized

 

         water, or high temperature

 

         gas reactor used in the

 

         production of electricity.

 

         Does not include nuclear

 

         fuel assemblies used in

 

         breader reactors.

 

 ----------------------------------------------------------------------

 

 49.13   Electric Utility Steam

 

         Production Plant:

 

         Includes assets used in         28        20           28

 

         the steam power production

 

         of electricity for sale,

 

         combustion turbines

 

         operated in a combined

 

         cycle with a conventional

 

         steam unit and related

 

         land improvements. Also

 

         includes package boilers,

 

         electric generators and

 

         related assets such as

 

         electricity and steam

 

         distribution systems as

 

         used by a waste reduction

 

         and resource recovery

 

         plant if the steam or

 

         electricity is normally

 

         for sale to others.

 

 ----------------------------------------------------------------------

 

 49.14   Electric Utility

 

         Transmission and

 

         Distribution Plant:

 

         Includes assets used in         30        20           30

 

         the transmission and

 

         distribution of

 

         electricity for sale and

 

         related land improvements.

 

         Excludes initial clearing

 

         and grading land

 

         improvements as specified

 

         in

 

 Rev. Rul. 72-403,

 

         1972-2 C.B. 102.

 

 ----------------------------------------------------------------------

 

 49.15   Electric Utility

 

         Combustion Turbine

 

         Production Plant:

 

         Includes assets used in         20        15           20

 

         the production of

 

         electricity for sale by

 

         the use of such prime

 

         movers as jet engines,

 

         combustion turbines,

 

         diesel engines, gasoline

 

         engines, and other

 

         internal combustion

 

         engines, their associated

 

         power turbines and/or

 

         generators, and related

 

         land improvements. Does

 

         not include combustion

 

         turbines operated in a

 

         combined cycle with a

 

         conventional steam unit.

 

 ----------------------------------------------------------------------

 

 49.21   Gas Utility Distribution

 

         Facilities:

 

         Includes gas water heaters      35        20           35

 

         and gas conversion

 

         equipment installed by

 

         utility on customers'

 

         premises on a rental

 

         basis.

 

 ----------------------------------------------------------------------

 

 49.221  Gas Utility Manufactured

 

         Gas Production Plants:

 

         Includes assets used in         30        20           30

 

         the manufacture of gas

 

         having chemical and/or

 

         physical properties which

 

         do not permit complete

 

         interchangeability with

 

         domestic natural gas. Does

 

         not include gas-producing

 

         systems and related

 

         systems used in waste

 

         reduction and resource

 

         recovery plants which are

 

         elsewhere classified.

 

 ----------------------------------------------------------------------

 

 49.222  Gas Utility Substitute

 

         Natural Gas (SNG)

 

         Production Plant (naphtha

 

         or lighter hydrocarbon

 

         feedstocks):

 

         Includes assets used in         14         7           14

 

         the catalytic conversion

 

         of feedstocks or naphtha

 

         or lighter hydrocarbons to

 

         a gaseous fuel which is

 

         completely interchangeable

 

         with domestic natural gas.

 

 ----------------------------------------------------------------------

 

 49.223  Substitute Natural Gas --

 

         Coal Gasification:

 

         Includes assets used in         18        10           18

 

         the manufacture and

 

         production of pipeline

 

         quality gas from coal

 

         using the basic Lurgi

 

         process with advanced

 

         methanation. Includes all

 

         process plant equipment

 

         and structures used in

 

         this coal gasification

 

         process and all utility

 

         assets such as cooling

 

         systems, water supply and

 

         treatment facilities, and

 

         assets used in the

 

         production and

 

         distribution of

 

         electricity and steam for

 

         use by the taxpayer in a

 

         gasification plant and

 

         attendant coal mining site

 

         processes but not for

 

         assets used in the

 

         production and

 

         distribution of

 

         electricity and steam for

 

         sale to others. Also

 

         includes all other related

 

         land improvements. Does

 

         not include assets used in

 

         the direct mining and

 

         treatment of coal prior to

 

         the gasification process

 

         itself.

 

 ----------------------------------------------------------------------

 

 49.23   Natural Gas Production

 

         Plant                           14         7           14

 

 ----------------------------------------------------------------------

 

 49.24   Gas Utility Trunk

 

         Pipelines and Related

 

         Storage Facilities:

 

         Excluding initial clearing      22        15           22

 

         and grading land

 

         improvements as specified

 

         in

 

 Rev. Rul. 72-40.

 

 ----------------------------------------------------------------------

 

 49.25   Liquefied Natural Gas

 

         Plant:

 

         Includes assets used in         22        15           22

 

         the liquefaction, storage,

 

         and regasification of

 

         natural gas including

 

         loading and unloading

 

         connections,

 

         instrumentation equipment

 

         and controls, pumps,

 

         vaporizers and odorizers,

 

         tanks, and related land

 

         improvements. Also

 

         includes pipeline

 

         interconnections with gas

 

         transmission lines and

 

         distribution systems and

 

         marine terminal

 

         facilities.

 

 ----------------------------------------------------------------------

 

 49.3    Water Utilities:

 

         Includes assets used in         50     20***           50

 

         the gathering, treatment,

 

         and commercial

 

         distribution of water.

 

 ----------------------------------------------------------------------

 

 49.4    Central Steam Utility

 

         Production and

 

         Distribution:

 

         Includes assets used in         28        20           28

 

         the production and

 

         distribution of steam for

 

         sale. Does not include

 

         assets used in waste

 

         reduction and resource

 

         recovery plants which are

 

         elsewhere classified.

 

 ----------------------------------------------------------------------

 

 49.5    Waste Reduction and

 

         Resource Recovery Plants:

 

         Includes assets used in         10         7           10

 

         the conversion of refuse

 

         or other solid waste or

 

         biomass to heat or to a

 

         solid, liquid, or gaseous

 

         fuel. Also includes all

 

         process plant equipment

 

         and structures at the

 

         site used to receive,

 

         handle, collect, and

 

         process refuse or other

 

         solid waste or biomass in

 

         a waterwall, combustion

 

         system, oil or gas

 

         pyrolysis system, or

 

         refuse derived fuel system

 

         to create hot water, gas,

 

         steam and electricity.

 

         Includes material recovery

 

         and support assets used in

 

         refuse or solid refuse or

 

         solid waste receiving,

 

         collecting, handling,

 

         sorting, shredding,

 

         classifying, and

 

         separation systems. Does

 

         not include any package

 

         boilers, or electric

 

         generators and related

 

         assets such as

 

         electricity, hot water,

 

         steam and manufactured gas

 

         production plants

 

         classified in classes

 

         00.4, 49.13, 49.221, and

 

         49.4. Does include,

 

         however, all other

 

         utilities such as water

 

         supply and treatment

 

         facilities, ash handling

 

         and other related land

 

         improvements of a waste

 

         reduction and resource

 

         recovery plant.

 

 ----------------------------------------------------------------------

 

 50.     Municipal Wastewater            24        15           24

 

         Treatment Plant

 

 ----------------------------------------------------------------------

 

 51.     Municipal Sewer                 50     20***           50

 

 ----------------------------------------------------------------------

 

 57.0    Distributive Trades and

 

         Services:

 

         Includes assets used in          9         5           9*

 

         wholesale and retail

 

         trade, and personal and

 

         professional services.

 

         Includes section 1245

 

         assets used in marketing

 

         petroleum and petroleum

 

         products.

 

 ----------------------------------------------------------------------

 

 57.1    Distributive Trades and

 

         Services -- Billboard,

 

         Service Station Buildings

 

         and Petroleum Marketing

 

         Land Improvements:

 

         Includes section 1250           20        15           20

 

         assets, including service

 

         station buildings and

 

         depreciable land

 

         improvements, whether

 

         section 1245 property or

 

         section 1250 property,

 

         used in the marketing

 

         of petroleum and petroleum

 

         products, but not

 

         including any of these

 

         facilities related to

 

         petroleum and natural gas

 

         trunk pipelines. Includes

 

         car wash buildings and

 

         related land improvements.

 

         Includes billboards,

 

         whether such assets are

 

         section 1245 property or

 

         section 1250 property.

 

         Excludes all other land

 

         improvements, buildings

 

         and structural components

 

         as defined in section

 

         1.48-1(e) of the

 

         regulations. See Gas

 

         station convenience stores

 

         in chapter 3.

 

 ----------------------------------------------------------------------

 

 79.0    Recreation:

 

         Includes assets used in         10         7           10

 

         the provision of

 

         entertainment services on

 

         payment of a fee or

 

         admission charge, as in

 

         the operation of bowling

 

         alleys, billiard and pool

 

         establishments, theaters,

 

         concert halls, and

 

         miniature golf courses.

 

         Does not include amusement

 

         and theme parks and assets

 

         which consist primarily of

 

         specialized land

 

         improvements or

 

         structures, such as golf

 

         courses, sports stadia,

 

         race tracks, ski slopes,

 

         and buildings which house

 

         the assets used in

 

         entertainment services.

 

 ----------------------------------------------------------------------

 

 80.0    Theme and Amusement Parks:

 

         Includes assets used in       12.5         7         12.5

 

         the provision of rides,

 

         attractions, and

 

         amusements in activities

 

         defined as theme and

 

         amusement parks, and

 

         includes appurtenances

 

         associated with a ride,

 

         attraction, amusement or

 

         theme setting within the

 

         park such as ticket

 

         booths, facades, shop

 

         interiors, and props,

 

         special purpose

 

         structures, and

 

         buildings other than

 

         warehouses, administration

 

         buildings, hotels, and

 

         motels. Includes all land

 

         improvements for or in

 

         support of park activities

 

         (e.g., parking lots,

 

         sidewalks, waterways,

 

         bridges, fences,

 

         landscaping, etc.), and

 

         support functions (e.g.,

 

         food and beverage

 

         retailing, souvenir

 

         vending and other

 

         nonlodging accommodations)

 

         if owned by the park and

 

         provided exclusively for

 

         the benefit of park

 

         patrons. Theme and

 

         amusement parks are

 

         defined as combinations of

 

         amusements, rides, and

 

         attractions which are

 

         permanently situated on

 

         park land and open to the

 

         public for the price of

 

         admission. This guideline

 

         class is a composite of

 

         all assets used in this

 

         industry except

 

         transportation equipment

 

         (general purpose trucks,

 

         cars, airplanes, etc.,

 

         which are included in

 

         asset guideline classes

 

         with the prefix 00.2),

 

         assets used in the

 

         provision of

 

         administrative services

 

         (asset classes with the

 

         prefix 00.1) and

 

         warehouses, administration

 

         buildings, hotels and

 

         motels.

 

 ----------------------------------------------------------------------

 

         Certain Property for Which

 

         Recovery Periods Assigned

 

         A. Personal Property With                  7           12

 

         No Class Life

 

         Section 1245 Real Property                 7           40

 

         With No Class Life

 

         B. Qualified Technological      **         5            5

 

         Equipment, as defined in

 

         section 168(i)(2).

 

         C. Property Used in             **         5     class life if

 

         Connection with Research                            no class

 

         and Experimentation                                life -- 12

 

         referred to in section

 

         168(e)(3)(B).

 

         D. Alternative energy           **         5     class life if

 

         property described in                               no class

 

         sections 48(l)(3)(A)(ix)                           life -- 12

 

         (as in effect on the day

 

         before the date of

 

         enactment (11/5/90) of the

 

         Revenue Reconciliation Act

 

         of 1990).

 

         E. Biomass property             **         5     class life if

 

         described in section                                no class

 

         48(l)(15) (as in effect on                         life -- 12

 

         the day before the date of

 

         enactment (11/5/90) of the

 

         Revenue Reconciliation Act

 

         of 1990) and is a

 

         qualifying small

 

         production facility within

 

         the meaning of section

 

         3(17)(c) of the Federal

 

         Power Act (16 U.S.C.

 

         796(17)(C)), as in effect

 

         on September 1, 1986.

 

         F. Energy property              **         5     class life if

 

         described in section                                no class

 

         48(a)(3)(A) (or would be                           life -- 12

 

         described if "solar or

 

         wind energy" were

 

         substituted for "solar

 

         energy" in section

 

         48(a)(3)(A)(i)).

 

 ----------------------------------------------------------------------

 

 * Property described in asset classes 01.223, 01.224, and 01.225 are

 

 assigned recovery periods but have no class lives.

 

 ** A horse is more than 2 (or 12) years old after the day that is 24

 

 (or 144) months after its actual birthdate.

 

 *** 7 if property was placed in service before 1989.

 

 * Property described in asset guideline class 48.13 which is qualified

 

 technological equipment as defined in section 168(i)(2) is assigned a

 

 5-year recovery period.

 

 * Any high technology medical equipment as defined in section

 

 168(i)(2)(C) which is described in asset guideline class 57.0 is

 

 assigned a 5-year recovery period for the alternate MACRS method.

 

 ** The class life (if any) of property described in classes B, C, D,

 

 E, or F is determined by reference to the asset guideline classes. If

 

 an item of property described in paragraphs B, C, D, E, or F is not

 

 described in any asset guideline class, such item of property has no

 

 class life.

 

 *** Use straight line over 25 years if placed in service after June

 

 12, 1996, unless placed in service under a binding contract in effect

 

 before June 10, 1996, and at all times until placed in service.

 

 ======================================================================

 

 

Glossary

Abstract fees: Expenses generally paid by a buyer to research the title of real property.

Active conduct of a trade or business: Generally, for the section 179 deduction, a taxpayer is considered to conduct a trade or business actively if he or she meaningfully participates in the management or operations of the trade or business. A mere passive investor in a trade or business does not actively conduct the trade or business.

Adjusted basis: The original cost of property, plus certain additions and improvements, minus certain deductions such as depreciation allowed or allowable and casualty losses.

Amortization: A ratable deduction for the cost of intangible property over its useful life.

Amount realized: The total of all money received plus the fair market value of all property or services received from a sale or exchange. The amount realized also includes any liabilities assumed by the buyer and any liabilities to which the property transferred is subject, such as real estate taxes or a mortgage.

Basis: A measure of an individual's investment in property for tax purposes.

Business/investment use: Usually, a percentage showing how much an item of property, such as an automobile, is used for business and investment purposes.

Capitalized: Expended or treated as an item of a capital nature. A capitalized amount is not deductible as a current expense and must be included in the basis of property.

Circumstantial evidence: Details or facts which indirectly point to other facts.

Class life: A number of years that establishes the property class and recovery period for most types of property under the General Depreciation System (GDS) and Alternative Depreciation System (ADS).

Commuting: Travel between a personal home and work or job site within the area of an individual's tax home.

Convention: A method established under the Modified Accelerated Cost Recovery System (MACRS) to determine the portion of the year to depreciate property both in the year the property is placed in service and in the year of disposition.

Declining balance method: An accelerated method to depreciate property. The General Depreciation System (GDS) of MACRS uses the 150% and 200% declining balance methods for certain types of property. A depreciation rate (percentage) is determined by dividing the declining balance percentage by the recovery period for the property.

Disposition: The permanent withdrawal from use in a trade or business or from the production of income.

Documentary evidence: Written records that establish certain facts.

Exchange: To barter, swap, part with, give, or transfer property for other property or services.

Fair market value (FMV): The price that property brings when it is offered for sale by one who is willing but not obligated to sell, and is bought by one who is willing or desires to buy but is not compelled to do so.

Fiduciary: The one who acts on behalf of another as a guardian, trustee, executor, administrator, receiver, or conservator.

Fungible commodity: A commodity of a nature that one part may be used in place of another part.

Goodwill: An intangible property such as the advantage or benefit received in property beyond its mere value. It is not confined to a name but can also be attached to a particular area where business is transacted, to a list of customers, or to other elements of value in business as a going concern.

Grantor: The one who transfers property to another.

Improvement: An addition to or partial replacement of property that adds to its value, appreciably lengthens the time you can use it, or adapts it to a different use.

Intangible property: Property that has value but cannot be seen or touched, such as goodwill, patents, copyrights, and computer software.

Listed property: Passenger automobiles; any other property used for transportation; property of a type generally used for entertainment, recreation or amusement; and computers and their peripheral equipment (unless used only at a regular business establishment and owned or leased by the person operating the establishment).

Nonresidential real property: Most real property other than residential rental property.

Placed in service: Ready and available for a specific use whether in a trade or business, the production of income, a tax-exempt activity, or a personal activity.

Property class: A category for property under MACRS. It generally determines the depreciation method, recovery period, and convention.

Recapture: To include as income on your return an amount allowed or allowable as a deduction in a prior year.

Recovery period: The number of years over which the basis of an item of property is recovered.

Remainder interest: That part of an estate that is left after all the other provisions of a will have been satisfied.

Residential rental property: Real property, generally buildings or structures, if 80% or more of its annual gross rental income is from dwelling units.

Salvage value: An estimated value of property at the end of its useful life. Not used under MACRS.

Section 1245 property: Property that is or has been subject to an allowance for depreciation or amortization. Section 1245 property includes personal property, single purpose agricultural and horticultural structures, storage facilities used in connection with the distribution of petroleum or primary products of petroleum, and railroad grading or tunnel bores.

Section 1250 property: Real property (other than section 1245 property) which is or has been subject to an allowance for depreciation.

Standard mileage rate: The established amount for optional use in determining a tax deduction for automobiles instead of deducting depreciation and actual operating expenses.

Straight line method: A way to figure depreciation for property that ratably deducts the same amount for each year in the recovery period. The rate (in percentage terms) is determined by dividing 1 by the number of years in the recovery period.

Structural components: Parts that together form an entire structure, such as a building. The term includes those parts of a building such as walls, partitions, floors, and ceilings, as well as any permanent coverings such as paneling or tiling, windows and doors, and all components of a central air conditioning or heating system including motors, compressors, pipes and ducts. It also includes plumbing fixtures such as sinks, bathtubs, electrical wiring and lighting fixtures, and other parts that form the structure.

Tangible property: Property you can see or touch, such as buildings, machinery, vehicles, furniture, and equipment.

Tax-exempt: Not subject to tax.

Term interest: A life interest in property, an interest in property for a term of years, or an income interest in a trust. It generally refers to a present or future interest in income from property or the right to use property that terminates or fails upon the lapse of time, the occurrence of an event, or the failure of an event to occur.

Unadjusted basis: The basis of an item of property for purposes of figuring gain on a sale without taking into account any depreciation taken in earlier years but with adjustments for other amounts, including amortization, the section 179 deduction, any special depreciation allowance, any deduction claimed for clean-fuel vehicles or clean-fuel vehicle refueling property placed in service before January 1, 2006, and any electric vehicle credit.

Unit-of-production method: A way to figure depreciation for certain property. It is determined by estimating the number of units that can be produced before the property is worn out. For example, if it is estimated that a machine will produce 1000 units before its useful life ends, and it actually produces 100 units in a year, the percentage to figure depreciation for that year is 10% of the machine's cost less its salvage value.

Useful life: An estimate of how long an item of property can be expected to be usable in trade or business or to produce income.

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