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Caution: DRAFT—NOT FOR FILING
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collection through the Federal Register process; for more info, click here.2021 Department of the Treasury
Internal Revenue Service
Instructions for Form 4562
Depreciation and Amortization (Including Information on Listed Property)
• A section 179 expense deduction
DRAFT AS OF
Section references are to the Internal Revenue Generally, you can depreciate:
Code unless otherwise noted. (which may include a carryover from a • Tangible property such as buildings,
previous year). machinery, vehicles, furniture, and
Future Developments • Depreciation on any vehicle or other equipment; and
For the latest information about listed property (regardless of when it • Intangible property such as patents,
developments related to Form 4562 and was placed in service). copyrights, and computer software.
• A deduction for any vehicle reported
November 12, 2021
its instructions, such as legislation
Exception. You cannot depreciate
enacted after this form and instructions on a form other than Schedule C (Form
land.
were published, go to IRS.gov/ 1040), Profit or Loss From Business.
Form4562. • Any depreciation on a corporate Accelerated Cost Recovery
income tax return (other than Form System
What's New 1120-S).
The Accelerated Cost Recovery System
Section 179 deduction dollar limits.
• Amortization of costs that begins (ACRS) applies to property first used
during the 2021 tax year.
For tax years beginning in 2021, the before 1987. It is the name given for the
maximum section 179 expense If you are an employee deducting tax rules that allow a taxpayer to recover
deduction is $1,050,000. This limit is job-related vehicle expenses using through depreciation deductions the
reduced by the amount by which the either the standard mileage rate or cost of property used in a trade or
cost of section 179 property placed in actual expenses, use Form 2106, business or to produce income. These
service during the tax year exceeds Employee Business Expenses, for this rules are mandatory and generally apply
$2,620,000. Also, the maximum section purpose. to tangible property placed in service
179 expense deduction for sport utility after 1980 and before 1987. If you
File a separate Form 4562 for each placed property in service during this
vehicles (SUVs) placed in service in tax
business or activity on your return for period, you must continue to figure your
years beginning in 2021 is $26,200.
which Form 4562 is required. If you depreciation under ACRS.
Recovery period for certain race need more space, attach additional
horses. The 3-year recovery period for sheets. However, complete only one ACRS consists of accelerated
race horses 2 years old or younger, will Part I in its entirety when computing depreciation methods and an alternate
not apply to horses placed in service your section 179 expense deduction. ACRS method that could have been
after December 31, 2021. See the instructions for line 12, later. elected. The alternate ACRS method
Accelerated depreciation for quali- used a recovery percentage based on a
fied Indian reservation property. The Additional Information modified straight line method. See the
accelerated depreciation of property on For more information about depreciation instructions for line 16 for more
an Indian reservation property will not and amortization (including information information. For a complete discussion
apply to property placed in service after on listed property), see the following. of ACRS, see Pub. 534.
December 31, 2021. • Pub. 463, Travel, Gift, and Car
Expenses. Modified Accelerated Cost
• Pub. 534, Depreciating Property Recovery System
General Instructions Placed in Service Before 1987. The Modified Accelerated Cost
• Pub. 535, Business Expenses. Recovery System (MACRS) is the
Purpose of Form • Pub. 551, Basis of Assets. current method of accelerated asset
Use Form 4562 to: • Pub. 946, How To Depreciate depreciation required by the tax code.
• Claim your deduction for depreciation Property. Under MACRS, all assets are divided
and amortization, into classes which dictate the number of
• Make the election under section 179 Definitions years over which an asset's cost will be
to expense certain property, and recovered. Each MACRS class has a
• Provide information on the business/ Depreciation predetermined schedule which
investment use of automobiles and Depreciation is the annual deduction determines the percentage of the
other listed property. that allows you to recover the cost or asset's costs which is depreciated each
other basis of your business or year. For more information, see Part III.
Who Must File investment property over a certain MACRS Depreciation, later. For a
Except as otherwise noted, complete number of years. Depreciation starts complete discussion of MACRS, see
and file Form 4562 if you are claiming when you first use the property in your chapter 4 of Pub. 946.
any of the following. business or for the production of
Section 179 Property
• Depreciation for property placed in income. It ends when you either take the
service during the 2021 tax year. property out of service, deduct all your Section 179 property is property that
depreciable cost or basis, or no longer you acquire by purchase for use in the
use the property in your business or for active conduct of your trade or
the production of income. business, and is one of the following.
Nov 10, 2021 Cat. No. 12907Y• Qualified section 179 real property. • Qualified improvement property as 3. An ambulance, hearse, or vehicle
For more information, see Special rules described in section 168(e)(6), and used for transporting persons or
for qualified section 179 real property, • Any of the following improvements to property for compensation or hire; or
later. nonresidential real property placed in 4. Any truck or van placed in service
• Tangible personal property, including service after the date the nonresidential after July 6, 2003, that is a qualified
cellular telephones, similar real property was first placed in service. nonpersonal use vehicle.
telecommunications equipment, and air 1. Roofs.
conditioning or heating units (for For purposes of the exceptions
2. Heating, ventilation, and above, a portion of the taxpayer's home
DRAFT AS OF
example, portable air conditioners or
heaters). Also, tangible personal air-conditioning property. is treated as a regular business
property may include certain property 3. Fire protection and alarm establishment only if that portion meets
used mainly to furnish lodging or in systems. the requirements for deducting
connection with the furnishing of lodging 4. Security systems. expenses attributable to the business
(except as provided in section 50(b)(2)). use of a home. However, for any
This property is considered "qualified
• Other tangible property (except property listed in (1) above, the regular
November 12, 2021
section 179 real property." business establishment of an employee
buildings and their structural
components) used as: A deduction attributable to qualified is his or her employer's regular business
section 179 real property which is establishment.
1. An integral part of manufacturing, disallowed under the trade or business
production, or extraction, or of income limitation (see Business Income Commuting
furnishing transportation, Limit in chapter 2 of Pub. 946) for 2021 Generally, commuting is defined as
communications, electricity, gas, water, can be carried over to 2022. Thus, the travel between your home and a work
or sewage disposal services; amount of any 2021 disallowed section location. However, travel that meets any
2. A research facility used in 179 expense deduction attributable to of the following conditions is not
connection with any of the activities in qualified section 179 real property will commuting.
(1) above; or be reported on line 13 of Form 4562. • You have at least one regular work
3. A facility used in connection with location away from your home and the
Amortization travel is to a temporary work location in
any of the activities in (1) above for the
bulk storage of fungible commodities. Amortization is similar to the straight line the same trade or business, regardless
• Single purpose agricultural (livestock) method of depreciation in that an annual of the distance. Generally, a temporary
or horticultural structures. deduction is allowed to recover certain work location is one where your
• Storage facilities (except buildings costs over a fixed time period. You can employment is expected to last 1 year
and their structural components) used in amortize such items as the costs of or less. See Pub. 463 for details.
connection with distributing petroleum starting a business, goodwill, and • The travel is to a temporary work
or any primary product of petroleum. certain other intangibles. See the location outside the metropolitan area
instructions for Part VI. where you live and normally work.
• Off the shelf computer software.
Listed Property • Your home is your principal place of
Section 179 property does not business for purposes of deducting
include the following. Listed property generally includes the expenses for business use of your
• Property held for investment (section following. home and the travel is to another work
212 property). • Passenger automobiles weighing location in the same trade or business,
• Property used mainly outside the 6,000 pounds or less. See Limits for regardless of whether that location is
United States (except for property passenger automobiles, later. regular or temporary and regardless of
described in section 168(g)(4)). • Any other property used for distance.
• Property used by a tax-exempt transportation if the nature of the
organization (other than a section 521 property lends itself to personal use, Alternative Minimum Tax
such as motorcycles, pickup trucks,
farmers' cooperative) unless the
SUVs, etc. (AMT)
property is used mainly in a taxable
unrelated trade or business. • Any property used for entertainment Depreciation may be an adjustment for
or recreational purposes (such as the AMT. However, no adjustment
• Property used by a governmental unit applies in several instances. See Form
or foreign person or entity (except for photographic, phonographic,
communication, and video recording 6251, Alternative Minimum
property used under a lease with a term
equipment). Tax—Individuals; Schedule I (Form
of less than 6 months).
1041), Alternative Minimum
Exceptions. Listed property does not Tax—Estates and Trusts; and the
See the instructions for Part I and
include: related instructions.
Pub. 946.
1. Photographic, phonographic,
Special rules for qualified section
179 real property. You can elect to
communication, or video equipment Recordkeeping
used exclusively in a taxpayer's trade or Except for Part V (relating to listed
treat certain qualified real property business or at the taxpayer's regular
placed in service during the tax year as property), the IRS does not require you
business establishment; to submit detailed information with your
section 179 property. See Election for
certain qualified section 179 real 2. Any computer or peripheral return on the depreciation of assets
property in Part I for information on how equipment used exclusively at a regular placed in service in previous tax years.
to make this election. If the election is business establishment and owned or However, the information needed to
made, the term "section 179 property" leased by the person operating the compute your depreciation deduction
will include any qualified real property establishment; (basis, method, etc.) must be part of
which is: your permanent records.
-2- Instructions for Form 4562 (2021)You may use the depreciation Revocation. The election (or any be used in a renewal community by a
TIP worksheet, later, to assist you in specification made in the election) can renewal community business in any
maintaining depreciation be revoked without obtaining IRS year after you claim the increased
records. However, the worksheet is approval by filing an amended return. section 179 expense deduction.
designed only for federal income tax The amended return must be filed within
purposes. You may need to keep Line 2
the time prescribed by law for the
additional records for accounting and applicable tax year. The amended Enter the total cost of all section 179
state income tax purposes. return must include any resulting property you placed in service during
the tax year (including the total cost of
DRAFT AS OF
adjustments to taxable income or to the
tax liability (for example, allowable qualified real property that you elect to
Specific Instructions depreciation in that tax year for the item treat as section 179 property). Also,
of section 179 property to which the include the cost of the following.
Part I. Election To Expense revocation pertains). For more • Any listed property from Part V.
• Any property placed in service by
Certain Property Under information and examples, see
your spouse, even if you are filing a
November 12, 2021
Regulations section 1.179-5(c)(3) and
Section 179 (c)(4). Once made, the revocation is separate return. This includes qualified
irrevocable. section 179 real property that your
spouse made the election to treat as
Note. An estate or trust cannot make If you elect to expense section section 179 property for 2021.
this election. ! 179 property, you must reduce
CAUTION the amount on which you figure Line 3
You can elect to expense part or all your depreciation or amortization The amount of section 179 property for
of the cost of section 179 property deduction (including any special which you can make the election is
(defined earlier) that you placed in depreciation allowance) by the section limited to the maximum dollar amount
service during the tax year and used 179 expense deduction. on line 1. This amount is reduced if the
predominantly (more than 50%) in your cost of all section 179 property placed in
trade or business. Line 1 service in 2021 is more than
Generally, the maximum section 179 $2,620,000.
However, for taxpayers other than a
corporation, this election does not apply expense deduction is $1,050,000 for
For a partnership (other than an
to any section 179 property you section 179 property (including qualified
electing large partnership), these
purchased and leased to others unless: section 179 real property) placed in
limitations apply to the partnership and
service during the tax year beginning in
• You manufactured or produced the each partner. For an electing large
property; or 2021.
partnership, the limitations apply only to
• The term of the lease is less than the partnership. For an S corporation,
50% of the property's class life and, for You can use Worksheet 1 to
these limitations apply to the S
the first 12 months after the property is TIP assist you in determining the corporation and each shareholder. For a
transferred to the lessee, the deductions amount to enter on line 1.
controlled group, all component
related to the property allowed to you as members are treated as one taxpayer.
Recapture rule. If the section 179
trade or business expenses (except
rents and reimbursed amounts) are
property is not used predominantly Line 5
(more than 50%) in your trade or If line 5 is zero, you cannot elect to
more than 15% of the rental income
business at any time before the end of expense any section 179 property. In
from the property.
the property's recovery period, the this case, skip lines 6 through 11, enter
Election. You must make the election benefit of the section 179 expense zero on line 12, and enter the carryover
on Form 4562 filed with either: deduction must be reported as “other of any disallowed deduction from 2019
• The original return you file for the tax income” on your return. (which does not include amounts
year the property was placed in service If any qualified section 179 disaster attributable to qualified section 179 real
(whether or not you file your return on assistance property ceases to be used property) on line 13.
time), or in the applicable federally declared
• An amended return filed within the disaster area in any year after you claim See Special rules for qualified
time prescribed by law for the applicable the increased section 179 expense section 179 real property, earlier.
tax year. The election made on an deduction for that property, the benefit
amended return must specify the item of of the increased section 179 expense If you are married filing separately,
section 179 property to which the deduction must be reported as “other you and your spouse must allocate the
election applies and the part of the cost income” on your return. Similar rules dollar limitation for the tax year. To do
of each such item to be taken into apply if qualified Liberty Zone property so, multiply the total limitation that you
account. The amended return must also ceases to be used in the Liberty Zone, if would otherwise enter on line 5 by 50%
include any resulting adjustments to qualified section 179 GO Zone property (0.50), unless you both elect a different
taxable income. ceases to be used in the GO Zone, if allocation. If you both elect a different
Election for certain qualified qualified section 179 Recovery allocation, multiply the total limitation by
section 179 real property. You can Assistance property ceases to be used the percentage elected. The sum of the
elect to expense certain qualified real in the Recovery Assistance area, if percentages you and your spouse elect
property that you first placed in service qualified empowerment zone property must equal 100%.
as section 179 property for tax years ceases to be used in an empowerment
zone by an enterprise zone business, or Do not enter on line 5 more than your
beginning in 2021. For more share of the total dollar limitation.
information, see Election above. if qualified renewal property ceases to
Instructions for Form 4562 (2021) -3-Worksheet 1. Worksheet for Lines 1, 2, and Partnerships. Enter the smaller of
3 Keep for Your Records line 5 or the partnership's total items of
income and expense, described in
Maximum section 179 limitation calculation. section 702(a), from any trade or
1.* Enter total cost of section 179 property (including qualified section 179 real
business the partnership actively
property) placed in service during the tax year beginning in 2021 . . . . . . . . . conducted (other than credits,
tax-exempt income, the section 179
2. The maximum section 179 deduction limitation for 2021 ............... $1,050,000 expense deduction, and guaranteed
DRAFT AS OF
3. Enter the smaller of line 1 or line 2 here . . . . . . . . . . . . . . . . . . . . . . . . . . . payments under section 707(c)).
4. Enter the amount from line 3 here and on Form 4562, line 1 . . . . . . . . . . . . . S corporations. Enter the smaller of
line 5 or the corporation's total items of
Maximum threshold cost of section 179 property before reduction in limitation calculation.
income and expense described in
5. Enter the amount from line 1 here and on Form 4562, line 2 . . . . . . . . . . . . . section 1366(a) from any trade or
business the corporation actively
November 12, 2021
6. Base maximum threshold cost of section 179 property before reduction in $2,620,000
limitation for 2021. Enter this amount on Form 4562, line 3 . . . . . . . . . . . . . . conducted (other than credits,
tax-exempt income, the section 179
Maximum elected cost for Form 4562, lines 6 and 7, column (c). expense deduction, and the deduction
7. Enter the smaller of line 1 or line 4. The total amount you enter on Form for compensation paid to the
4562, lines 6 and 7, column (c), cannot exceed this amount . . . . . . . . . corporation's shareholder-employees).
* For line 1 of this worksheet, include the total amount of eligible section 179 property (including qualified section Corporations other than S corpora-
179 real property), not just the amount for which you are making the election. See the instructions for line 2. tions. Enter the smaller of line 5 or the
corporation's taxable income before the
section 179 expense deduction, net
Line 6 property, if any, you elected to expense operating loss deduction, and special
in previous years that was not allowed deductions (excluding items not derived
Do not include any listed property on from a trade or business actively
line 6. Enter the elected section 179 as a deduction because of the business
income limitation. If you filed Form 4562 conducted by the corporation).
cost of listed property in column (i) of
line 26. for 2020, enter the amount from line 13 Line 12
of your 2020 Form 4562.
Column (a)—Description of proper- The limitations on lines 5 and 11 apply
ty. Enter a brief description of the Line 11 to the taxpayer, and not to each
property you elect to expense (for The total cost you can deduct is limited separate business or activity. Therefore,
example, truck, office furniture, qualified to your taxable income from the active if you have more than one business or
improvement property, roof, etc.). conduct of a trade or business during activity, you may allocate your allowable
the year. You are considered to actively section 179 expense deduction among
Column (b)—Cost (business use on- them.
conduct a trade or business only if you
ly). Enter the cost of the property. If you
meaningfully participate in its To do so, enter “Summary” at the top
acquired the property through a
management or operations. A mere of Part I of the separate Form 4562 you
trade-in, do not include any carryover
passive investor is not considered to are completing for the total amounts
basis of the property traded in. Include
actively conduct a trade or business. from all businesses or activities. Do not
only the excess of the cost of the
property over the value of the property complete the rest of that form. On
Note. If you have to apply another
traded in. line 12 of the Form 4562 you prepare for
Code section that has a limitation based
each separate business or activity, enter
Column (c)—Elected cost. Enter the on taxable income, see Pub. 946 for
the amount allocated to the business or
amount you elect to expense. You can rules on how to apply the business
activity from the “Summary.” No other
depreciate the amount you do not income limitation for the section 179
entry is required in Part I of the separate
expense. See the line 19 and line 20 expense deduction.
Form 4562 prepared for each business
instructions. Individuals. Enter the smaller of line 5 or activity.
To report your share of a section 179 or the total taxable income from any
expense deduction from a partnership trade or business you actively Part II. Special
or an S corporation, enter “from conducted, computed without regard to
Schedule K-1 (Form 1065)” or “from any section 179 expense deduction, the
Depreciation Allowance
Schedule K-1 (Form 1120-S)” across deduction for one-half of and Other Depreciation
columns (a) and (b). self-employment taxes under section Line 14
164(f), or any net operating loss
Line 7 deduction. Also, include all wages, For qualified property (defined below)
Enter the amount that you elected to salaries, tips, and other compensation placed in service during the tax year,
expense for listed property (defined you earned as an employee (from Form you may be able to take an additional
earlier) on line 29 here. For more 1040, line 1). Do not reduce this amount special depreciation allowance. The
information, see Part V—Listed by unreimbursed employee business special depreciation allowance applies
Property, later. expenses. If you are married filing a joint only for the first year the property is
return, combine the total taxable placed in service. The allowance is an
Line 10 additional deduction you can take after
incomes for you and your spouse.
The carryover of disallowed deduction any section 179 expense deduction and
from 2020 is the amount of section 179
-4- Instructions for Form 4562 (2021)before you figure regular depreciation • The property must be depreciated years ending in 2018, 2019, and 2020.
under the MACRS. under MACRS. Also, see sections 5 and 6 of Rev. Proc.
Qualified property. You can take the • The property must have a useful life 2020-50, 2020-48 I.R.B. 1122, available
of at least 5 years. at IRS.gov/irb/2020-48_IRB#REV-
special depreciation allowance for
certain qualified property acquired • You must have acquired the property PROC-2020-50, for special rules for
by purchase after August 31, 2008. If a making a late election or revoking the
before September 28, 2017, certain
binding contract to acquire the property election under section 168(k)(5), for tax
qualified property acquired after
existed before September 1, 2008, the years beginning in 2016 through 2020.
September 27, 2017, qualified reuse
DRAFT AS OF
property does not qualify.
and recycling property, and certain Exceptions. Qualified property does
plants bearing fruits and nuts. • The property must be placed in not include:
service after August 31, 2008.
Certain qualified property • The original use of the property must • Listed property used 50% or less in a
begin with you after August 31, 2008. qualified business use (as defined in the
acquired after September 27, 2017.
instructions for lines 26 and 27);
Certain qualified property (defined • For self-constructed property, special
• Any property required to be
November 12, 2021
below) acquired after September 27, rules apply. See section 168(m)(2)(C).
depreciated under the Alternative
2017, and placed in service before Qualified reuse and recycling Depreciation System (ADS) (that is, not
January 1, 2023 (or before January 1, property does not include rolling stock property for which you elected to use
2024, for certain property with a long or other equipment used to transport ADS);
production period and for certain reuse and recyclable materials or any
aircraft), is eligible for a special • Property placed in service and
property to which section 168(g) or (k) disposed of in the same tax year;
depreciation allowance of 100% of the applies.
depreciable basis of the property. • Property converted from business or
Certain plants bearing fruits and income-producing use to personal use
Qualified property is: in the same tax year it is acquired; or
nuts. You can elect to claim a 100%
• Tangible property depreciated under special depreciation allowance for the • Property for which you elected not to
MACRS with a recovery period of 20 claim any special depreciation
adjusted basis of certain specified
years or less; allowance.
plants (defined later) bearing fruits and
• Computer software defined in and nuts planted or grafted before January
depreciated under section 167(f)(1). In addition, qualified second
1, 2027.
• Water utility property (see 25-year generation biofuel plant property does
property, later); and A specified plant is: not include the following.
• Qualified film, television, and live • Any tree or vine that bears fruits or • Any tax-exempt bond financed
theatrical productions, as defined in nuts, and property under section 103.
sections 181(d) and (e). • Any other plant that will have more • Any property for which a deduction
than one yield of fruits or nuts and was taken under section 179C for
Qualified property must also be
generally has a pre-productive period of certain qualified refinery property.
placed in service before January 1,
more than 2 years from planting or • Other bonus depreciation property to
2027 (or before January 1, 2028, for
grafting to the time it begins bearing which section 168(k) applies.
certain property with a long production
fruits or nuts.
period and for certain aircraft), and can
Any property planted or grafted See sections 168(k) and 168(m) for
be either new property or certain used
outside the United States does not additional information. Also, see Pub.
property.
qualify as a specified plant. 946.
See Pub. 946 for more information.
Also, see section 168(k) and If you elect to claim the special How to figure the allowance. Figure
Regulations sections 1.168(k)-2 and depreciation allowance for any specified the special depreciation allowance by
1.1502-68. plant, the special depreciation multiplying the depreciable basis of the
allowance applies only for the tax year property by the applicable percentage.
Qualified reuse and recycling in which the plant is planted or grafted. To figure the depreciable basis,
property. Certain qualified reuse and The plant will not be treated as qualified subtract from the business/investment
recycling property (defined below) property eligible for the special portion of the cost or other basis of the
placed in service after August 31, 2008, depreciation allowance in the property any credits and deductions
is eligible for a 50% special depreciation subsequent tax year in which it is placed allocable to the property. The following
allowance. in service. are examples of some credits and
Qualified reuse and recycling To make the election, attach a deductions that reduce the depreciable
property includes any machinery and statement to your timely filed return basis.
equipment (not including buildings or (including extensions) indicating you are • Section 179 expense deduction.
real estate), along with any electing to apply section 168(k)(5) and • Deduction for removal of barriers to
appurtenance, that is used exclusively identifying the specified plant(s) for the disabled and the elderly.
to collect, distribute, or recycle qualified which you are making the election. • Disabled access credit.
reuse and recyclable materials. This Once made, the election cannot be • Enhanced oil recovery credit.
includes software necessary to operate revoked without IRS consent. • Credit for employer-provided
such equipment. See section 168(m)(3) childcare facilities and services.
See sections 4 and 5 of Rev. Proc.
for more information.
2020-25, 2020-19 I.R.B. 785, available • Basis adjustment to investment credit
Qualified reuse and recycling at IRS.gov/irb/2020-19_IRB#REV- property under section 50(c).
property must also meet all of the PROC-2020-25, for special rules for • Section 181 expense deduction.
following tests. making a late election, or revoking the For additional credits and deductions
election under section 168(k)(5), for tax that affect the depreciable basis, see
section 1016. Also, see Pub. 946.
Instructions for Form 4562 (2021) -5-Note. If you acquired qualified property I.R.B. 1122, available at IRS.gov/irb/ value, any section 179 expense
through a like-kind exchange or 2020-48_IRB#REV-PROC-2020-50, for deduction, deduction for removal of
involuntary conversion after September special rules for making a late election barriers to the disabled and the elderly,
27, 2017, and the qualified property is or revoking the election, to not deduct disabled access credit, enhanced oil
new property, the carryover basis and any special depreciation allowance for recovery credit, credit for
any excess basis of the acquired any class of property for tax years employer-provided childcare facilities
property is eligible for the special beginning in 2016 through 2020. and services, any special depreciation
depreciation allowance. allowance, and any other applicable
Note. If you elect to not have any
DRAFT AS OF
Generally, a like-kind exchange after deduction or credit).
December 31, 2017, is an exchange of special depreciation allowance apply,
the property placed in service during the For additional credits and deductions
real property. that may affect the depreciable basis,
tax year will not be subject to an AMT
If you acquired qualified property adjustment for depreciation. see section 1016. Also, see section
through a like-kind exchange or 50(c) to determine the basis adjustment
involuntary conversion after September Recapture. When you dispose of for investment credit property.
November 12, 2021
27, 2017, and the qualified property is property for which you claimed a special
used property, only the excess basis of depreciation allowance, any gain on the Line 16
the acquired property is eligible for the disposition is generally recaptured Enter the total depreciation you are
special depreciation allowance. (included in income) as ordinary income claiming for the following types of
up to the amount of the depreciation property (except listed property and
If you take the special previously allowed or allowable for the property subject to a section 168(f)(1)
! depreciation allowance, you property, including the special election).
CAUTION must reduce the amount on
depreciation allowance. For more • ACRS property (pre-1987 rules). See
which you figure your regular information, see MACRS recapture, Pub. 534.
depreciation or amortization deduction later. If qualified GO Zone property • Property placed in service before
by the amount deducted. Also, you will (including specified GO Zone property) 1981.
not have any AMT adjustment for ceases to be qualified GO Zone • Certain public utility property which
depreciation for the qualified property. property, if qualified Recovery does not meet certain normalization
Assistance property ceases to be requirements.
Election out. You can elect, for any qualified Recovery Assistance property, • Certain property acquired from
class of property, to not deduct any if qualified cellulosic biomass ethanol related persons.
special depreciation allowance for all plant property ceases to be qualified • Property acquired in certain
such property in such class placed in cellulosic biomass ethanol plant nonrecognition transactions.
service during the tax year. property, if qualified second generation • Certain sound recordings, movies,
To make an election, attach a biofuel plant property ceases to be and videotapes.
statement to your timely filed return qualified second generation biofuel • Property depreciated under the
(including extensions) indicating the plant property, or if qualified disaster income forecast method. The use of the
class of property for which you are assistance property ceases to be income forecast method is limited to
making the election and that, for such qualified disaster assistance property in motion picture films, videotapes, sound
class, you are not to claim any special any year after the year you claim the recordings, copyrights, books, and
depreciation allowance. special depreciation allowance, the patents.
The election must be made excess benefit you received from
If you take the special
separately by each person owning claiming the special depreciation
! depreciation allowance for a
qualified property (for example, by the allowance must be recaptured as CAUTION qualified film, television, or live
partnership, by the S corporation, or for ordinary income. For information on
theatrical production, you must reduce
each member of a consolidated group depreciation recapture, see Pub. 946.
the amount on which you figure your
by the common parent of the group). Also, see Notice 2008-25, 2008-9 I.R.B.
regular depreciation deduction by the
484, available at IRS.gov/irb/
If you timely filed your return without amount deducted.
2008-09_IRB/ar10.html, for additional
making an election, you can still make
guidance on recapture of qualified GO If you use the income forecast
the election by filing an amended return
Zone property. method for any property placed in
within 6 months of the due date of the
return (excluding extensions). Enter Line 15 service after September 13, 1995, you
“Filed pursuant to section 301.9100-2” may owe interest or be entitled to a
Report on this line depreciation for refund for the 3rd and 10th tax years
on the amended return. property that you elect to depreciate beginning after the tax year the property
Once made, the election cannot be under the unit-of-production method or was placed in service. For details, see
revoked without IRS consent. any other method not based on a term Form 8866, Interest Computation Under
See sections 4 and 5 of Rev. Proc. of years (other than the the Look-Back Method for Property
2020-25, 2020-19 I.R.B. 785, available retirement-replacement-betterment Depreciated Under the Income Forecast
at IRS.gov/irb/2020-19_IRB#REV- method). Method.
PROC-2020-25, for special rules for
Attach a separate sheet showing: For property placed in service in the
making a late election, or revoking the
election, to not deduct any special
• A description of the property and the current tax year, you can either include
depreciation method you elect that certain participations and residuals in
depreciation allowance for any class of
excludes the property from MACRS or the adjusted basis of the property or
property for tax years ending in 2018,
ACRS; and deduct these amounts when paid. See
2019, and 2020. Also, see sections 5
and 6 of Rev. Proc. 2020-50, 2020-48
• The depreciable basis (cost or other section 167(g)(7). You cannot use this
basis reduced, if applicable, by salvage method to depreciate any amortizable
-6- Instructions for Form 4562 (2021)section 197 intangible. For more details, Section A on your return filed no later than the due
see the instructions on section 197 date (including extensions) for the tax
intangibles, later. year in which the assets included in the
• Intangible property, other than Line 17 general asset account were placed in
section 197 intangibles, including the For tangible property placed in service service. Once made, the election is
following. in tax years beginning before 2021 and irrevocable and applies to the tax year
depreciated under MACRS (“MACRS for which the election is made and all
1. Computer software. Use the
asset”), enter the deductions for the later tax years.
straight line method over 36 months. A
current year. To figure the deductions,
DRAFT AS OF
longer period may apply to software For more information on depreciating
see the instructions for line 19, column
leased under a lease agreement property in a general asset account, see
(g).
entered into after March 12, 2004, to a Pub. 946.
tax-exempt organization, governmental Note. If you dispose of a portion of a
unit, or foreign person or entity (other MACRS asset and are required to (or
Section B
than a partnership). See section 167(f) elect to) take the basis of the asset into Property acquired in a like-kind ex-
November 12, 2021
(1)(C). account, you must reduce the basis and change or involuntary conversion.
If you elect the section 179 depreciation reserve of the MACRS Generally, you must depreciate the
! expense deduction or take the asset by the basis and depreciation carryover basis of property you acquire
CAUTION special depreciation allowance reserve attributable to the disposed in a like-kind exchange or involuntary
for qualified computer software, you portion as of the first day of the tax year conversion during the current tax year
must reduce the amount on which you before you compute the depreciation over the remaining recovery period of
figure your regular depreciation deduction for the current year. To figure the property exchanged or involuntarily
deduction by the amount deducted. the depreciation deduction for the converted. Use the same depreciation
remaining MACRS asset and the method and convention that was used
2. Any right to receive tangible disposed portion, see the instructions for the exchanged or involuntarily
property or services under a contract or for line 19, column (g). For more converted property. Treat any excess
granted by a governmental unit (not information, see Regulations section basis as newly placed in service
acquired as part of a business). 1.168(i)-8. property. Figure depreciation separately
3. Any interest in a patent or for the carryover basis and the excess
copyright not acquired as part of a
Line 18 basis, if any.
business. To simplify the computation of MACRS
These rules apply only to acquired
depreciation, you can elect to group
4. Residential mortgage servicing property with the same or a shorter
assets into one or more general asset
rights. Use the straight line method over recovery period or the same or a more
accounts. The assets in each general
108 months. accelerated depreciation method than
asset account are depreciated as a
5. Other intangible assets with a the property exchanged or involuntarily
single asset.
limited useful life that cannot be converted. For additional rules, see
estimated with reasonable accuracy. Each general asset account must Regulations section 1.168(i)-6(c) and
Generally, use the straight line method include only assets that were placed in Pub. 946.
over 15 years. See Regulations section service during the same tax year and
Election out. Instead of using the
1.167(a)-3(b) for details and exceptions. that have the same depreciation
above rules, you can elect, for
method, recovery period, and
Prior years' depreciation, plus depreciation purposes, to treat the
convention. However, an asset cannot
current year's depreciation, can adjusted basis of the exchanged
!
CAUTION never exceed the depreciable
be included in a general asset account if
property as if it was disposed of at the
the asset is used both for personal
basis of the property. time of the exchange or involuntary
purposes and business/investment
conversion. Generally, treat the
purposes.
carryover basis and excess basis, if
Part III. MACRS When an asset in an account is any, for the acquired property as if
Depreciation disposed of, the amount realized must placed in service on the date you
generally be recognized as ordinary acquired it. The depreciable basis of the
income. The unadjusted depreciable new property is the adjusted basis of the
The term “Modified Accelerated Cost basis and depreciation reserve of the exchanged or involuntarily converted
Recovery System” (MACRS) includes general asset account are not affected property plus any additional amount
the General Depreciation System (GDS) as a result of a disposition. paid for it. See Regulations section
and the Alternative Depreciation System 1.168(i)-6(i).
(ADS). Generally, MACRS is used to Special rules apply to passenger
automobiles, assets generating foreign To make the election, figure the
depreciate any tangible property placed depreciation deduction for the new
in service after 1986. However, MACRS source income, assets converted to
personal use, certain asset dispositions, property in Part III. For listed property,
does not apply to films, videotapes, and use Part V. Attach a statement
sound recordings. For more details and and like-kind exchanges or involuntary
conversions of property in a general indicating “Election made under section
exceptions, see Pub. 946. 1.168(i)-6(i)” for each property involved
asset account. For more details, see
Regulations section 1.168(i)-1 (as in in the exchange or involuntary
effect for tax years beginning on or after conversion. The election must be made
January 1, 2014). separately by each person acquiring
replacement property (for example, by
To make the election, check the box the partnership, by the S corporation, or
on line 18. You must make the election by the common parent of a consolidated
Instructions for Form 4562 (2021) -7-group). The election must be made on 7-year property includes the • Farm buildings (other than single
your timely filed return (including following. purpose agricultural or horticultural
extensions). Once made, the election • Office furniture and equipment. structures).
cannot be revoked without IRS consent. • Railroad track. • Municipal sewers not classified as
Generally, a like-kind exchange • Any motorsports entertainment 25-year property.
after December 31, 2017, is an
complex (as defined in section 168(i) • Initial clearing and grading land
! exchange of real property.
(15)). improvements for electric utility
• Any natural gas gathering line (as transmission and distribution plants.
CAUTION
DRAFT AS OF
defined in section 168(i)(17)) placed in 25-year property is water utility
Lines 19a Through 19i service after April 11, 2005, the original property, which is:
Use lines 19a through 19i only for use of which begins with you after April
assets placed in service during the tax • Property that is an integral part of the
11, 2005, and is not under gathering, treatment, or commercial
year beginning in 2021 and depreciated self-construction or subject to a binding distribution of water that, without regard
under GDS, except for automobiles and contract in existence before April 12, to this classification, would be 20-year
other listed property (which are reported
November 12, 2021
2005. Also, no AMT adjustment is property; and
in Part V). required. • Municipal sewers.
Column (a)—Classification of prop- • Any used agricultural machinery and This classification does not apply to
erty. Sort the property you acquired equipment placed in service after 2017, property placed in service under a
and placed in service during the tax grain bins, cotton ginning assets, or binding contract in effect at all times
year beginning in 2021 according to its fences used in a farming business (but since June 9, 1996.
classification (3-year property, 5-year no other land improvements).
Residential rental property is a
property, etc.) as shown in column (a) of • Any property that does not have a building in which 80% or more of the
lines 19a through 19i. The class life and is not otherwise classified.
total rent is from dwelling units.
classifications for some property are 10-year property includes the
shown below. For property not shown, following. Nonresidential real property is any
real property that is neither residential
see Determining the classification, later. • Vessels, barges, tugs, and similar rental property nor property with a class
3-year property includes the water transportation equipment.
life of less than 27.5 years.
following. • Any single purpose agricultural or
• A race horse that is more than 2 horticultural structure (see section 168(i) 50-year property includes any
years old at the time it is placed in (13)). improvements necessary to construct or
service before January 1, 2009. • Any tree or vine bearing fruit or nuts. improve a roadbed or right-of-way for
Note. Any race horse placed in service • Any qualified smart electric meter railroad track that qualifies as a railroad
after December 31, 2008, and before property. grading or tunnel bore under section
January 1, 2022, is treated as 3-year • Any qualified smart electric grid 168(e)(4).
property (regardless of the age of the system property. There is no separate line to report
race horse). 15-year property includes the 50-year property. Therefore, attach a
• Any horse (other than a race horse) following. statement showing the same
that is more than 12 years old at the • Any municipal wastewater treatment information as required in columns (a)
time it is placed in service. plant. through (g). Include the deduction in the
• Any qualified rent-to-own property (as • Any telephone distribution plant and line 22 “Total” and enter “See
defined in section 168(i)(14)). comparable equipment used for 2-way attachment” in the bottom margin of the
5-year property includes the exchange of voice and data form.
following. communications. Determining the classification. If
• Automobiles. • Any section 1250 property that is a your depreciable property is not listed
• Light general purpose trucks. retail motor fuels outlet (whether or not above, determine the classification as
• Typewriters, calculators, copiers, and food or other convenience items are follows.
duplicating equipment. sold there).
1. Find the property's class life. See
• Any semi-conductor manufacturing • Initial clearing and grading land
improvements for gas utility property. the Table of Class Lives and Recovery
equipment. Periods in Pub. 946.
• Any qualified technological • Certain electric transmission property
equipment. specified in section 168(e)(3)(E)(v) 2. Use the following table to find the
• Any section 1245 property used in placed in service after April 11, 2005, classification in column (b) that
connection with research and the original use of which begins with you corresponds to the class life of the
experimentation. after April 11, 2005, and is not under property in column (a).
• Certain energy property specified in self-construction or subject to a binding
section 168(e)(3)(B)(vi). contract in existence before April 12,
• Appliances, carpets, furniture, etc., 2005.
used in a rental real estate activity. • Qualified improvement property, as
• Any new machinery or equipment defined in section 168(e)(6), placed in
(other than any grain bin, cotton ginning service by you after December 31,
asset, fence, or other land 2017.
improvement) used in a farming 20-year property includes the
business and placed in service after following.
2017, in tax years ending after 2017.
The original use of the property must
begin with you after 2017.
-8- Instructions for Form 4562 (2021)(a) (b) Column (e)—Convention. The
Recovery Period for Most
Class life (in years) Classification applicable convention determines the
(See Pub. 946.) Property portion of the tax year for which
4 or less . . . . . . . . . . 3-year property depreciation is allowable during a year
More than 4 but less than 5-year property Recovery property is either placed in service or
10 . . . . . . . . . . . . . . Classification period
disposed of. There are three types of
10 or more but less than 7-year property 3-year property . . . . . . . . 3 yrs.
conventions. To select the correct
16 . . . . . . . . . . . . . . 5-year property . . . . . . . . 5 yrs.
7-year property . . . . . . . . 7 yrs.
convention, you must know the type of
DRAFT AS OF
16 or more but less than 10-year property
20 . . . . . . . . . . . . . . 10-year property . . . . . . . 10 yrs. property and when you placed the
20 or more but less than 15-year property 15-year property . . . . . . . 15 yrs. property in service.
25 . . . . . . . . . . . . . . 20-year property . . . . . . . 20 yrs. Half-year convention. This
25 or more . . . . . . . . . 20-year property 25-year property . . . . . . . 25 yrs.
convention applies to all property
Residential rental
reported on lines 19a through 19g,
property . . . . . . . . . . . . 27.5 yrs.
unless the mid-quarter convention
November 12, 2021
Nonresidential real
Column (b)—Month and year placed applies. It does not apply to residential
property . . . . . . . . . . . . 39 yrs.
in service. For lines 19h and 19i, enter Railroad gradings and tunnel rental property, nonresidential real
the month and year you placed the bores . . . . . . . . . . . . . . 50 yrs. property, and railroad gradings and
property in service. If you converted tunnel bores. It treats all property placed
property held for personal use to use in Indian reservation property. For in service (or disposed of) during any
a trade or business or for the production qualified Indian reservation property tax year as placed in service (or
of income, treat the property as being placed in service before January 1, disposed of) on the midpoint of that tax
placed in service on the conversion 2022, the following shorter recovery year. Enter “HY” in column (e).
date. periods apply.
Mid-quarter convention. If the total
Column (c)—Basis for depreciation depreciable bases (before any special
(business/investment use only). To Recovery Period for Qualified depreciation allowance) of MACRS
find the basis for depreciation, multiply Indian Reservation Property property placed in service during the
the cost or other basis of the property by last 3 months of your tax year exceed
the percentage of business/investment Recovery 40% of the total depreciable bases of
use. From that result, subtract any Property class period MACRS property placed in service
credits and deductions allocable to the 3-year property . . . . . . . . 2 yrs. during the entire tax year, the
property. The following are examples of 5-year property . . . . . . . . 3 yrs. mid-quarter, instead of the half-year,
some credits and deductions that 7-year property . . . . . . . . 4 yrs. convention generally applies.
reduce the basis for depreciation. 10-year property . 6 yrs.
. . . . . . In determining whether the
• Section 179 expense deduction. 15-year property . . . . . . . 9 yrs. mid-quarter convention applies, do not
• Deduction for removal of barriers to 20-year property . . . . . . . 12 yrs. take into account the following.
the disabled and the elderly.
• Disabled access credit.
Nonresidential real • Property that is being depreciated
property . . . . . . . . . . . . 22 yrs. under a method other than MACRS.
• Enhanced oil recovery credit. • Any residential rental property,
• Credit for alternative fuel vehicle For example, figure depreciation on nonresidential real property, or railroad
refueling property. 5-year property acquired during the tax gradings and tunnel bores.
• Credit for employer-provided year that is qualified Indian reservation
• Property that is placed in service and
childcare facilities and services. property in the same manner as disposed of within the same tax year.
• Any special depreciation allowance depreciation is figured for 3-year
included on line 14. property that is not qualified Indian The mid-quarter convention treats all
• Any basis adjustment for investment reservation property. Report the property placed in service (or disposed
credit property. See section 50(c). depreciation on line 19b, entering “3 of) during any quarter as placed in
yrs.” as the recovery period in column service (or disposed of) on the midpoint
For additional credits and deductions
(d). For more information, including the of that quarter. However, no
that affect the depreciable basis, see
definition of qualified property, see Pub. depreciation is allowed under this
section 1016 and Pub. 946.
946. convention for property that is placed in
Column (d)—Recovery period. service and disposed of within the same
Determine the recovery period from the Note. You can elect, for any class of tax year. Enter “MQ” in column (e).
following table. See Pub. 946 for more qualified Indian reservation property, to
information on the recovery period for Mid-month convention. This
not accelerate depreciation for all such convention applies only to residential
MACRS property. property in such class placed in service rental property (line 19h), nonresidential
during the tax year. real property (line 19i), and railroad
To make this election, attach a gradings and tunnel bores. It treats all
statement to your timely filed return property placed in service (or disposed
(including extensions) indicating the of) during any month as placed in
class of property for which you are service (or disposed of) on the midpoint
making the election and that, for such of that month. Enter “MM” in column (e).
class, you are electing not to apply
section 168(j). Once made, the election Column (f)—Method. Applicable
is irrevocable. depreciation methods are prescribed for
each classification of property as
Instructions for Form 4562 (2021) -9-follows. However, you can make an Column (g)—Depreciation deduc- Mid-month (MM)
irrevocable election to use the straight tion. To figure the depreciation convention
line method for all property within a deduction, you may use optional Tables Placed in service Placed
classification that is placed in service A through E, which begin later. Multiply (or disposed of) in Disposed
during the tax year. Enter “200 DB” for column (c) by the applicable rate from during the: service of
200% declining balance, “150 DB” for the appropriate table. See Pub. 946 for 1st month . . . . 0.9583 0.0417
150% declining balance, or “S/L” for complete tables. If you disposed of the 2nd month . . . . 0.8750 0.1250
straight line. 3rd month . . . . 0.7917 0.2083
property during the current tax year,
• 3-, 5-, 7-, and 10-year property.
DRAFT AS OF
4th month . . . . 0.7083 0.2917
multiply the result by the applicable 5th month . . . . 0.6250 0.3750
Generally, the applicable method is the decimal amount from the tables in Step 6th month . . . . 0.5417 0.4583
200% declining balance method, 3, later. Or, you may compute the 7th month . . . . 0.4583 0.5417
switching to the straight line method in deduction yourself by completing the 8th month . . . . 0.3750 0.6250
the first tax year that the straight line following steps. 9th month . . . . 0.2917 0.7083
rate exceeds the declining balance rate. 10th month . . . . 0.2083 0.7917
Step 1. Determine the depreciation
November 12, 2021
11th month . . . . 0.1250 0.8750
Note. The straight line method is the rate as follows. 12th month . . . . 0.0417 0.9583
only applicable method for trees and • If you are using the 200% or 150%
vines bearing fruit or nuts. The 150% declining balance method in column (f),
declining balance method is the only divide the declining balance rate (use
applicable method for any qualified 2.00 for 200 DB or 1.50 for 150 DB) by Short tax years. See Pub. 946 for
smart electric meter or any qualified the number of years in the recovery rules on how to compute the
smart electric grid system property period in column (d). For example, for depreciation deduction for property
placed in service after October 3, 2008. property depreciated using the 200 DB placed in service in a short tax year.
For 3-, 5-, 7-, or 10-year property method over a recovery period of 5 Section C
eligible for the 200% declining balance years, divide 2.00 by 5 for a rate of 40%.
method, you can make an irrevocable You must switch to the straight line rate
in the first year that the straight line rate Lines 20a Through 20d
election to use the 150% declining
balance method, switching to the exceeds the declining balance rate. Complete lines 20a through 20d for
straight line method in the first tax year • If you are using the straight line assets, other than automobiles and
that the straight line rate exceeds the method, divide 1.00 by the remaining other listed property, placed in service
declining balance rate. The election number of years in the recovery period only during the tax year beginning in
applies to all property within the as of the beginning of the tax year (but 2021 and depreciated under ADS.
classification for which it is made and not less than one). For example, if there Report on line 17 MACRS depreciation
that was placed in service during the tax are 61/2 years remaining in the recovery on assets placed in service in prior
year. You will not have an AMT period as of the beginning of the year, years.
adjustment for any property included divide 1.00 by 6.5 for a rate of 15.38%.
Under ADS, use the applicable
under this election. Step 2. Multiply the percentage rate depreciation method, the applicable
For 3-, 5-, 7-, or 10-year property determined in Step 1 by the property's recovery period, and the applicable
used in a farming business and placed unrecovered basis (basis for convention to compute depreciation.
in service after 2017, in tax years ending depreciation (as defined in column (c))
after 2017, the 150% declining balance reduced by all prior years' depreciation. The following types of property must
method is no longer required. However, be depreciated under ADS.
Step 3. For property placed in
the 150% declining balance method will
service or disposed of during the current
• Tangible property used
continue to apply to any 15- or 20-year predominantly outside the United
property used in a farming business to tax year, multiply the result from Step 2
States.
by the applicable decimal amount from
which the straight line method does not
the tables below (based on the
• Tax-exempt use property.
apply or to property for which you elect
convention shown in column (e)).
• Tax-exempt bond financed property.
the use of the 150% declining balance • Imported property covered by an
method. executive order of the President of the
• 15- and 20-year property and Half-year (HY) convention. . . . . . . 0.5 United States.
property used in a farming business. Mid-quarter (MQ) • Property used predominantly in a
The applicable method is the 150% convention farming business and placed in service
declining balance method, switching to Placed in service Placed during any tax year in which you made
the straight line method in the first tax (or disposed of) in Disposed an election under section 263A(d)(3) to
year that the straight line rate exceeds during the: service of not have the uniform capitalization rules
the declining balance rate. For 3-, 5-, 7-, 1st quarter . . . 0.875 0.125 of section 263A apply.
and 10-year property used in a farming 2nd quarter . . 0.625 0.375 • Any nonresidential real property,
business and placed in service after 3rd quarter . . . 0.375 0.625 residential rental property, or qualified
2017, see 3-, 5-, 7-, or 10-year property 4th quarter . . . 0.125 0.875 improvement property held by an
above. electing real property trade or business
• Water utility property, residential (as defined in section 163(j)(7)(B)).
rental property, nonresidential real • Any property that has a recovery
property, or any railroad grading or period of 10 years or more under
tunnel bore. The only applicable section 168(c) that is held by an electing
method is the straight line method. farming business (as defined in section
163(j)(7)(C)).
-10- Instructions for Form 4562 (2021)You can also read
