Instructions for Form 4562 2018

 
 
2018                                                                                                    Department of the Treasury
                                                                                                        Internal Revenue Service

Instructions for Form 4562
Depreciation and Amortization (Including Information on Listed Property)
Section references are to the Internal Revenue   years. See the instructions for Lines 20a   need more space, attach additional
Code unless otherwise noted.                     Through 20d, later.                         sheets. However, complete only one
                                                                                             Part I in its entirety when computing
Future Developments                                      At the time these instructions
                                                                                             your section 179 expense deduction.
                                                   !     went to print, Congress had not
For the latest information about                 CAUTION enacted legislation on the
                                                                                             See the instructions for line 12, later.
developments related to Form 4562 and
                                                 expired provisions related to
its instructions, such as legislation
                                                 depreciation. To find out if legislation    Additional Information
enacted after this form and instructions                                                     For more information about depreciation
                                                 extended the expired depreciation
were published, go to IRS.gov/                                                               and amortization (including information
                                                 provisions and made them available for
Form4562.                                                                                    on listed property), see the following.
                                                 2018, go to IRS.gov/Form4562.
                                                                                             • Pub. 463, Travel, Gift, and Car
What's New                                                                                   Expenses.
Section 179 deduction dollar limits.             General Instructions                        • Pub. 534, Depreciating Property
For tax years beginning in 2018, the                                                         Placed in Service Before 1987.
maximum section 179 expense                      Purpose of Form                             • Pub. 535, Business Expenses.
deduction is $1,000,000. This limit is           Use Form 4562 to:                           • Pub. 551, Basis of Assets.
reduced by the amount by which the               • Claim your deduction for depreciation     • Pub. 946, How To Depreciate
cost of section 179 property placed in           and amortization,                           Property.
service during the tax year exceeds              • Make the election under section 179
$2,500,000. See the instructions for Part        to expense certain property, and            Definitions
I.                                               • Provide information on the business/      Depreciation
Section 179 qualified real property.             investment use of automobiles and
                                                 other listed property.                      Depreciation is the annual deduction
For property placed in service in tax                                                        that allows you to recover the cost or
years beginning after 2017, qualified                                                        other basis of your business or
section 179 real property is qualified           Who Must File                               investment property over a certain
improvement property (as defined in              Except as otherwise noted, complete         number of years. Depreciation starts
section 168(e)(6)), and certain specific         and file Form 4562 if you are claiming      when you first use the property in your
improvements to nonresidential real              any of the following.                       business or for the production of
property, placed in service after the            • Depreciation for property placed in       income. It ends when you either take the
nonresidential real property was first           service during the 2018 tax year.           property out of service, deduct all your
placed in service. See Special rules for         • A section 179 expense deduction           depreciable cost or basis, or no longer
qualified section 179 real property, later.      (which may include a carryover from a       use the property in your business or for
                                                 previous year).                             the production of income.
Computers and related peripheral
equipment. Computers and related
                                                 • Depreciation on any vehicle or other
                                                 listed property (regardless of when it         Generally, you can depreciate:
peripheral equipment placed in service           was placed in service).                     • Tangible property such as buildings,
after 2017, in tax years ending after
2017, are no longer treated as listed
                                                 • A deduction for any vehicle reported      machinery, vehicles, furniture, and
                                                 on a form other than Schedule C (Form       equipment; and
property.                                        1040), Profit or Loss From Business, or     • Intangible property such as patents,
Electing real property trade or busi-            Schedule C-EZ (Form 1040), Net Profit       copyrights, and computer software.
ness and electing farm business. An              From Business.                              Exception. You cannot depreciate
electing real property trade or business         • Any depreciation on a corporate           land.
(as defined in section 163(j)(7)(B)) and         income tax return (other than Form
electing farming business (as defined in         1120S).                                     Accelerated Cost Recovery
section 163(j)(7)(C)) are required to use        • Amortization of costs that begins         System
the alternative depreciation system for          during the 2018 tax year.                   The Accelerated Cost Recovery System
certain property to figure depreciation                                                      (ACRS) applies to property first used
under MACRS for tax years beginning                 If you are an employee deducting
                                                 job-related vehicle expenses using          before 1987. It is the name given for the
after 2017.                                                                                  tax rules that allow a taxpayer to recover
                                                 either the standard mileage rate or
Recovery period for residential rent-            actual expenses, use Form 2106,             through depreciation deductions the
al property. For property placed in              Employee Business Expenses, or Form         cost of property used in a trade or
service after 2017, the alternative              2106-EZ, Unreimbursed Employee              business or to produce income. These
depreciation system (ADS) recovery               Business Expenses, for this purpose.        rules are mandatory and generally apply
period for residential rental property has                                                   to tangible property placed in service
been shortened from 40 years to 30                 File a separate Form 4562 for each        after 1980 and before 1987. If you
                                                 business or activity on your return for     placed property in service during this
                                                 which Form 4562 is required. If you

Jan 16, 2019                                                  Cat. No. 12907Y
period, you must continue to figure your     • Storage facilities (except buildings         costs over a fixed time period. You can
depreciation under ACRS.                     and their structural components) used in       amortize such items as the costs of
                                             connection with distributing petroleum         starting a business, goodwill, and
   ACRS consists of accelerated              or any primary product of petroleum.           certain other intangibles. See the
depreciation methods and an alternate                                                       instructions for Part VI.
ACRS method that could have been
                                             • Off the shelf computer software.
elected. The alternate ACRS method               Section 179 property does not
                                                                                            Listed Property
used a recovery percentage based on a        include the following.                         Listed property generally includes the
modified straight line method. See the       • Property held for investment (section        following.
instructions for line 16 for more            212 property).                                 • Passenger automobiles weighing
information. For a complete discussion       • Property used mainly outside the             6,000 pounds or less. See Limits for
of ACRS, see Pub. 534.                       United States (except for property             passenger automobiles, later.
                                             described in section 168(g)(4)).               • Any other property used for
Modified Accelerated Cost                                                                   transportation if the nature of the
                                             • Property used by a tax-exempt
Recovery System                              organization (other than a section 521         property lends itself to personal use,
The Modified Accelerated Cost                farmers' cooperative) unless the               such as motorcycles, pick-up trucks,
Recovery System (MACRS) is the               property is used mainly in a taxable           sport utility vehicles, etc.
current method of accelerated asset          unrelated trade or business.                   • Any property used for entertainment
depreciation required by the tax code.       • Property used by a governmental unit         or recreational purposes (such as
Under MACRS, all assets are divided          or foreign person or entity (except for        photographic, phonographic,
into classes which dictate the number of     property used under a lease with a term        communication, and video recording
years over which an asset's cost will be     of less than 6 months).                        equipment).
recovered. Each MACRS class has a                                                           • Computers or peripheral equipment
predetermined schedule which                   See the instructions for Part I and          placed in service before 2018.
determines the percentage of the             Pub. 946.
                                                                                            Exceptions. Listed property does not
asset's costs which is depreciated each      Special rules for qualified section            include:
year. For more information, see Part III.    179 real property. You can elect to
MACRS Depreciation, later. For a                                                               1. Photographic, phonographic,
                                             treat certain qualified real property          communication, or video equipment
complete discussion of MACRS, see            placed in service during the tax year as
chapter 4 of Pub. 946.                                                                      used exclusively in a taxpayer's trade or
                                             section 179 property. See Election for         business or at the taxpayer's regular
Section 179 Property                         certain qualified section 179 real             business establishment;
                                             property in Part I for information on how
Section 179 property is property that                                                          2. Any computer or peripheral
                                             to make this election. If the election is
you acquire by purchase for use in the                                                      equipment used exclusively at a regular
                                             made, the term "section 179 property"
active conduct of your trade or                                                             business establishment and owned or
                                             will include any qualified real property
business, and is one of the following.                                                      leased by the person operating the
                                             which is:
• Qualified section 179 real property.                                                      establishment;
For more information, see Special rules      • Qualified improvement property as
                                             described in section 168(e)(6), and               3. An ambulance, hearse, or vehicle
for qualified section 179 real property,
later.                                       • Any of the following improvements to         used for transporting persons or
                                             nonresidential real property placed in         property for compensation or hire; or
• Tangible personal property, including      service after the date the nonresidential
cellular telephones, similar                                                                   4. Any truck or van placed in service
                                             real property was first placed in service.     after July 6, 2003, that is a qualified
telecommunications equipment, and air
conditioning or heating units (for               1. Roofs.                                  nonpersonal use vehicle.
example, portable air conditioners or            2. Heating, ventilation, and                   For purposes of the exceptions
heaters). Also, tangible personal            air-conditioning property.                     above, a portion of the taxpayer's home
property may include certain property            3. Fire protection and alarm               is treated as a regular business
used mainly to furnish lodging or            systems.                                       establishment only if that portion meets
connection with the furnishing of lodging                                                   the requirements for deducting
(except as provided in section 50(b)(2)).        4. Security systems.
                                                                                            expenses attributable to the business
• Other tangible property (except                This property is considered "qualified     use of a home. However, for any
buildings and their structural               section 179 real property."                    property listed in (1) above, the regular
components) used as:                             A deduction attributable to qualified      business establishment of an employee
   1. An integral part of manufacturing,     section 179 real property which is             is his or her employer's regular business
production, or extraction or of furnishing   disallowed under the trade or business         establishment.
transportation, communications,              income limitation (see Business Income
electricity, gas, water, or sewage           Limit in chapter 2 of Pub. 946) for 2018       Commuting
disposal services;                           can be carried over to 2019. Thus, the         Generally, commuting is defined as
                                             amount of any 2018 disallowed section          travel between your home and a work
   2. A research facility used in
                                             179 expense deduction attributable to          location. However, travel that meets any
connection with any of the activities in
                                             qualified section 179 real property will       of the following conditions is not
(1) above; or
                                             be reported on line 13 of Form 4562.           commuting.
   3. A facility used in connection with                                                    • You have at least one regular work
any of the activities in (1) above for the   Amortization                                   location away from your home and the
bulk storage of fungible commodities.        Amortization is similar to the straight line   travel is to a temporary work location in
• Single purpose agricultural (livestock)    method of depreciation in that an annual       the same trade or business, regardless
or horticultural structures.                 deduction is allowed to recover certain

                                                                 -2-
of the distance. Generally, a temporary     to any section 179 property you              section 179 property (including qualified
work location is one where your             purchased and leased to others unless:       section 179 real property) placed in
employment is expected to last 1 year       • You manufactured or produced the           service during the tax year beginning in
or less. See Pub. 463 for details.          property; or                                 2018.
• The travel is to a temporary work         • The term of the lease is less than
location outside the metropolitan area      50% of the property's class life and, for             You can use Worksheet 1 to
where you live and normally work.           the first 12 months after the property is     TIP assist you in determining the
• Your home is your principal place of      transferred to the lessee, the deductions             amount to write on line 1.
business for purposes of deducting          related to the property allowed to you as
expenses for business use of your           trade or business expenses (except           Recapture rule. If the section 179
home and the travel is to another work      rents and reimbursed amounts) are            property is not used predominantly
location in the same trade or business,     more than 15% of the rental income           (more than 50%) in your trade or
regardless of whether that location is      from the property.                           business at any time before the end of
regular or temporary and regardless of                                                   the property's recovery period, the
                                            Election. You must make the election
distance.                                                                                benefit of the section 179 expense
                                            on Form 4562 filed with either:
                                                                                         deduction must be reported as “other
                                            • The original return you file for the tax
Alternative Minimum Tax                     year the property was placed in service
                                                                                         income” on your return.
(AMT)                                       (whether or not you file your return on          If any qualified section 179 disaster
Depreciation may be an adjustment for       time), or                                    assistance property ceases to be used
the AMT. However, no adjustment             • An amended return filed within the         in the applicable federally declared
applies in several instances. See Form      time prescribed by law for the applicable    disaster area in any year after you claim
6251, Alternative Minimum                   tax year. The election made on an            the increased section 179 expense
Tax—Individuals; Schedule I (Form           amended return must specify the item of      deduction for that property, the benefit
1041), Alternative Minimum                  section 179 property to which the            of the increased section 179 expense
Tax—Estates and Trusts; and the             election applies and the part of the cost    deduction must be reported as “other
related instructions.                       of each such item to be taken into           income” on your return. Similar rules
                                            account. The amended return also must        apply if qualified Liberty Zone property
Recordkeeping                               include any resulting adjustments to         ceases to be used in the Liberty Zone, if
                                            taxable income.                              qualified section 179 GO Zone property
Except for Part V (relating to listed                                                    ceases to be used in the GO Zone, if
property), the IRS does not require you        Election for certain qualified            qualified section 179 Recovery
to submit detailed information with your    section 179 real property. You can           Assistance property ceases to be used
return on the depreciation of assets        elect to expense certain qualified real      in the Recovery Assistance area, if
placed in service in previous tax years.    property that you first placed in service    qualified empowerment zone property
However, the information needed to          as section 179 property for tax years        ceases to be used in an empowerment
compute your depreciation deduction         beginning in 2018. For more                  zone by an enterprise zone business, or
(basis, method, etc.) must be part of       information, see Election above.             if qualified renewal property ceases to
your permanent records.                                                                  be used in a renewal community by a
                                            Revocation. The election (or any
         You may use the depreciation       specification made in the election) can      renewal community business in any
 TIP worksheet, later, to assist you in     be revoked without obtaining IRS             year after you claim the increased
         maintaining depreciation           approval by filing an amended return.        section 179 expense deduction.
records. However, the worksheet is          The amended return must be filed within
designed only for federal income tax
                                                                                         Line 2
                                            the time prescribed by law for the
purposes. You may need to keep              applicable tax year. The amended             Enter the total cost of all section 179
additional records for accounting and       return must include any resulting            property you placed in service during
state income tax purposes.                  adjustments to taxable income or to the      the tax year (including the total cost of
                                            tax liability (for example, allowable        qualified real property that you elect to
                                            depreciation in that tax year for the item   treat as section 179 property). Also,
Specific Instructions                       of section 179 property which the            include the cost of the following.
                                            revocation pertains). For more               • Any listed property from Part V.
Part I. Election To Expense                 information and examples, see                • Any property placed in service by
                                                                                         your spouse, even if you are filing a
Certain Property Under                      Regulations section 1.179-5(c)(3) and
                                                                                         separate return. This includes qualified
                                            (c)(4). Once made, the revocation is
Section 179                                 irrevocable.                                 section 179 real property your spouse
                                                                                         made the election to treat as section
                                                    If you elect to expense section      179 property for 2018.
Note. An estate or trust cannot make          !     179 property, you must reduce
this election.                              CAUTION the amount on which you figure       Line 3
                                            your depreciation or amortization            The amount of section 179 property for
    You can elect to expense part or all
                                            deduction (including any special             which you can make the election is
of the cost of section 179 property
                                            depreciation allowance) by the section       limited to the maximum dollar amount
(defined earlier) that you placed in
                                            179 expense deduction.                       on line 1. This amount is reduced if the
service during the tax year and used
                                                                                         cost of all section 179 property placed in
predominantly (more than 50%) in your
trade or business.                          Line 1                                       service in 2018 is more than
                                            Generally, the maximum section 179           $2,500,000.
   However, for taxpayers other than a      expense deduction is $1,000,000 for
corporation, this election does not apply

                                                               -3-
Worksheet 1. Worksheet for Lines 1, 2, and                                                                                Line 11
             3                                                              Keep for Your Records                         The total cost you can deduct is limited
                                                                                                                          to your taxable income from the active
 Maximum section 179 limitation calculation.                                                                              conduct of a trade or business during
   1.* Enter total cost of section 179 property (including qualified section 179 real                                     the year. You are considered to actively
       property) placed in service during the tax year beginning in 2018 . . . . . . . . .                                conduct a trade or business only if you
                                                                                                                          meaningfully participate in its
    2. The maximum section 179 deduction limitation for 2018               ...............                $1,000,000
                                                                                                                          management or operations. A mere
    3. Enter the smaller of line 1 or line 2 here and on Form 4562, line 1 . . . . . . . . .                              passive investor is not considered to
                                                                                                                          actively conduct a trade or business.
 Maximum threshold cost of section 179 property before reduction in limitation calculation.

    4. Enter the amount from line 1 here and on Form 4562, line 2 . . . . . . . . . . . . .                               Note. If you have to apply another
                                                                                                                          Code section that has a limitation based
    5. Base maximum threshold cost of section 179 property before reduction in                            $2,500,000
       limitation for 2018. Enter this amount on Form 4562, line 3 . . . . . . . . . . . . . .
                                                                                                                          on taxable income, see Pub. 946 for
                                                                                                                          rules on how to apply the business
 Maximum elected cost for Form 4562, lines 6 and 7, column (c).                                                           income limitation for the section 179
    6. Enter the smaller of line 1 or line 3. The total amount you enter on Form                                          expense deduction.
       4562, lines 6 and 7, column (c), cannot exceed this amount . . . . . . . . .                                       Individuals. Enter the smaller of line 5
 * For line 1 of this worksheet, include the total amount of eligible section 179 property (including qualified section   or the total taxable income from any
 179 real property), not just the amount for which you are making the election. See the line 2 instructions on this       trade or business you actively
 page.                                                                                                                    conducted, computed without regard to
                                                                                                                          any section 179 expense deduction, the
                                                                                                                          deduction for one-half of
   For a partnership (other than an                                                                                       self-employment taxes under section
                                                              Column (a)—Description of proper-
electing large partnership), these                                                                                        164(f), or any net operating loss
                                                              ty. Enter a brief description of the
limitations apply to the partnership and                                                                                  deduction. Also, include all wages,
                                                              property you elect to expense (for
each partner. For an electing large                                                                                       salaries, tips, and other compensation
                                                              example, truck, office furniture, qualified
partnership, the limitations apply only to                                                                                you earned as an employee (from Form
                                                              improvement property, roof, etc.).
the partnership. For an S corporation,                                                                                    1040, line 1). Do not reduce this amount
these limitations apply to the S                              Column (b)—Cost (business use on-                           by unreimbursed employee business
corporation and each shareholder. For a                       ly). Enter the cost of the property. If you                 expenses. If you are married filing a joint
controlled group, all component                               acquired the property through a                             return, combine the total taxable
members are treated as one taxpayer.                          trade-in, do not include any carryover                      incomes for you and your spouse.
                                                              basis of the property traded in. Include
Line 5                                                                                                                    Partnerships. Enter the smaller of
                                                              only the excess of the cost of the
                                                                                                                          line 5 or the partnership's total items of
If line 5 is zero, you cannot elect to                        property over the value of the property
                                                                                                                          income and expense described in
expense any section 179 property. In                          traded in.
                                                                                                                          section 702(a) from any trade or
this case, skip lines 6 through 11, enter                     Column (c)—Elected cost. Enter the                          business the partnership actively
zero on line 12, and enter the carryover                      amount you elect to expense. You can                        conducted (other than credits,
of any disallowed deduction from 2017                         depreciate the amount you do not                            tax-exempt income, the section 179
(which does not include amounts                               expense. See the line 19 and line 20                        expense deduction, and guaranteed
attributable to qualified section 179 real                    instructions.                                               payments under section 707(c)).
property) on line 13.
                                                                 To report your share of a section 179                    S corporations. Enter the smaller of
  See Special rules for qualified                             expense deduction from a partnership                        line 5 or the corporation's total items of
section 179 real property, earlier.                           or an S corporation, write “from                            income and expense described in
                                                              Schedule K-1 (Form 1065)” or “from                          section 1366(a) from any trade or
   If you are married filing separately,                      Schedule K-1 (Form 1120S)” across                           business the corporation actively
you and your spouse must allocate the                         columns (a) and (b).                                        conducted (other than credits,
dollar limitation for the tax year. To do                                                                                 tax-exempt income, the section 179
so, multiply the total limitation that you                    Line 7
                                                                                                                          expense deduction, and the deduction
would otherwise enter on line 5 by 50%                        Enter the amount that you elected to                        for compensation paid to the
(0.50), unless you both elect a different                     expense for listed property (defined                        corporation's shareholder-employees).
allocation. If you both elect a different                     earlier) on line 29 here. For more
allocation, multiply the total limitation by                  information, see Part V—Listed                              Corporations other than S corpora-
the percentage elected. The sum of the                        Property, later.                                            tions. Enter the smaller of line 5 or the
percentages you and your spouse elect                                                                                     corporation's taxable income before the
must equal 100%.                                              Line 10                                                     section 179 expense deduction, net
                                                              The carryover of disallowed deduction                       operating loss deduction, and special
  Do not enter on line 5 more than your                       from 2017 is the amount of section 179                      deductions (excluding items not derived
share of the total dollar limitation.                         property, if any, you elected to expense                    from a trade or business actively
                                                              in previous years that was not allowed                      conducted by the corporation).
Line 6                                                        as a deduction because of the business
Do not include any listed property on                         income limitation. If you filed Form 4562                   Line 12
line 6. Enter the elected section 179                         for 2017, enter the amount from line 13                     The limitations on lines 5 and 11 apply
cost of listed property in column (i) of                      of your 2017 Form 4562.                                     to the taxpayer, and not to each
line 26.

                                                                                          -4-
separate business or activity. Therefore,     2020 (or before January 1, 2021, for           • For self-constructed property, special
if you have more than one business or         certain property with a long production        rules apply. See section 168(m)(2)(C).
activity, you may allocate your allowable     period and for certain aircraft). The             Qualified reuse and recycling
section 179 expense deduction among           original use of the property must begin        property does not include rolling stock
them.                                         with you.                                      or other equipment used to transport
   To do so, write “Summary” at the top          Certain qualified property                  reuse and recyclable materials or any
of Part I of the separate Form 4562 you       acquired after September 27, 2017.             property to which section 168(g) or (k)
are completing for the total amounts          Certain qualified property (defined            applies.
from all businesses or activities. Do not     below) acquired after September 27,                Certain plants bearing fruits and
complete the rest of that form. On            2017, and before January 1, 2023, is           nuts. You can elect to claim a 100%
line 12 of the Form 4562 you prepare for      eligible for a special depreciation            special depreciation allowance for the
each separate business or activity, enter     allowance of 100% of the depreciable           adjusted basis of certain specified
the amount allocated to the business or       basis of the property.                         plants (defined later) bearing fruits and
activity from the “Summary.” No other            Qualified property is:                      nuts planted or grafted after September
entry is required in Part I of the separate   • Tangible property depreciated under          27, 2017, and before January 1, 2023.
Form 4562 prepared for each business          MACRS with a recovery period of 20                 A specified plant is:
or activity.                                  years or less.                                 • Any tree or vine that bears fruits or
                                              • Computer software defined in and             nuts, and
Part II. Special                              depreciated under section 167(f)(1).           • Any other plant that will have more
Depreciation Allowance                        • Water utility property.                      than one yield of fruits or nuts and
and Other Depreciation                        • Qualified film, television, and live         generally has a pre-productive period of
                                              theatrical productions, as defined in          more than 2 years from planting or
Line 14                                       sections 181(d) and (e).                       grafting to the time it begins bearing
For qualified property (defined below)           Qualified property also must be             fruits or nuts.
placed in service during the tax year,        placed in service before January 1,                Any property planted or grafted
you may be able to take an additional         2027 (or before January 1, 2028, for           outside the United States does not
special depreciation allowance. The           certain property with a long production        qualify as a specified plant.
special depreciation allowance applies        period and for certain aircraft), and can
                                              be either new property or certain used             If you elect to claim the special
only for the first year the property is
                                              property.                                      depreciation allowance for any specified
placed in service. The allowance is an
                                                                                             plant, the special depreciation
additional deduction you can take after          See Pub. 946 for more information.          allowance applies only for the tax year
any section 179 expense deduction and         Also, see section 168(k).                      in which the plant is planted or grafted.
before you figure regular depreciation
                                                  Qualified reuse and recycling              The plant will not be treated as qualified
under the modified accelerated cost
                                              property. Certain qualified reuse and          property eligible for the special
recovery system (MACRS).
                                              recycling property (defined below)             depreciation allowance in the
Qualified property. You can take the          placed in service after August 31, 2008,       subsequent tax year in which it is placed
special depreciation allowance for            is eligible for a 50% special depreciation     in service.
certain qualified property acquired           allowance.                                         To make the election, attach a
before September 28, 2017, certain                                                           statement to your timely filed return
                                                  Qualified reuse and recycling
qualified property acquired after                                                            (including extensions) indicating you are
                                              property includes any machinery and
September 27, 2017, qualified reuse                                                          electing to apply section 168(k)(5) and
                                              equipment (not including buildings or
and recycling property, and certain                                                          identifying the specified plant(s) for
                                              real estate), along with any
plants bearing fruits and nuts.                                                              which you are making the election.
                                              appurtenance, that is used exclusively
   Certain qualified property                 to collect, distribute, or recycle qualified   Once made, the election cannot be
acquired before September 28, 2017.           reuse and recyclable materials. This           revoked without IRS consent.
Certain qualified property acquired           includes software necessary to operate             See section 168(k)(5).
before September 28, 2017, and placed         such equipment. See section 168(m)(3)
                                              for more information.                              Exceptions. Qualified property does
in service in 2018, is eligible for a 40%
                                                                                             not include:
special depreciation allowance.                   Qualified reuse and recycling
Property with a long production period                                                       • Listed property used 50% or less in a
                                              property also must meet all of the             qualified business use (as defined in the
and certain aircraft acquired before          following tests.                               instructions for lines 26 and 27);
September 28, 2017, and placed in             • The property must be depreciated
service in 2018, is eligible for a 50%                                                       • Any property required to be
                                              under MACRS.                                   depreciated under the alternative
special depreciation allowance.               • The property must have a useful life         depreciation system (ADS) (that is, not
   Qualified property is:                     of at least 5 years.                           property for which you elected to use
• Tangible property depreciated under         • You must have acquired the property          ADS);
MACRS with a recovery period of 20            by purchase after August 31, 2008. If a        • Property placed in service and
years or less.                                binding contract to acquire the property       disposed of in the same tax year;
• Water utility property (see 25-year         existed before September 1, 2008, the          • Property converted from business or
property, later).                             property does not qualify.                     income-producing use to personal use
• Computer software defined in and            • The property must be placed in               in the same tax year it is acquired; or
depreciated under section 167(f)(1).          service after August 31, 2008.                 • Property for which you elected not to
   Qualified property also must be            • The original use of the property must        claim any special depreciation
placed in service before January 1,           begin with you after August 31, 2008.          allowance.

                                                                  -5-
See sections 168(k) and 168(m) for            The election must be made                 retirement-replacement-betterment
additional information. Also, see Pub.      separately by each person owning              method).
946.                                        qualified property (for example, by the
                                            partnership, by the S corporation, or for        Attach a separate sheet showing:
How to figure the allowance. Figure                                                       • A description of the property and the
                                            each member of a consolidated group
the special depreciation allowance by                                                     depreciation method you elect that
                                            by the common parent of the group).
multiplying the depreciable basis of the                                                  excludes the property from MACRS or
property by the applicable percentage.          If you timely filed your return without   the Accelerated Cost Recovery System
                                            making an election, you can still make        (ACRS); and
   To figure the depreciable basis,
                                            the election by filing an amended return
subtract from the business/investment
                                            within 6 months of the due date of the
                                                                                          • The depreciable basis (cost or other
portion of the cost or other basis of the                                                 basis reduced, if applicable, by salvage
                                            return (excluding extensions). Write          value, any section 179 expense
property any credits and deductions
                                            “Filed pursuant to section 301.9100-2”        deduction, deduction for removal of
allocable to the property. The following
                                            on the amended return.                        barriers to the disabled and the elderly,
are examples of some credits and
deductions that reduce the depreciable          Once made, the election cannot be         disabled access credit, enhanced oil
basis.                                      revoked without IRS consent.                  recovery credit, credit for
• Section 179 expense deduction.                                                          employer-provided childcare facilities
• Deduction for removal of barriers to      Note. If you elect to not have any            and services, any special depreciation
the disabled and the elderly.               special depreciation allowance apply,         allowance, and any other applicable
• Disabled access credit.                   the property placed in service during the     deduction or credit).
• Enhanced oil recovery credit.             tax year will not be subject to an AMT
• Credit for employer-provided              adjustment for depreciation.                     For additional credits and deductions
childcare facilities and services.                                                        that may affect the depreciable basis,
                                            Recapture. When you dispose of
• Basis adjustment to investment credit                                                   see section 1016. Also, see section
                                            property for which you claimed a special
property under section 50(c).                                                             50(c) to determine the basis adjustment
                                            depreciation allowance, any gain on the
• Section 181 expense deduction.                                                          for investment credit property.
                                            disposition is generally recaptured
For additional credits and deductions       (included in income) as ordinary income       Line 16
that affect the depreciable basis, see      up to the amount of the depreciation          Enter the total depreciation you are
section 1016. Also, see Pub. 946.           previously allowed or allowable for the       claiming for the following types of
                                            property, including the special               property (except listed property and
Note. If you acquired qualified property    depreciation allowance. For more
through a like-kind exchange or                                                           property subject to a section 168(f)(1)
                                            information, see MACRS recapture,             election).
involuntary conversion after September      later. If qualified GO Zone property
27, 2017, and the qualified property is                                                   • ACRS property (pre-1987 rules). See
                                            (including specified GO Zone property)        Pub. 534.
new property, the carryover basis and       ceases to be qualified GO Zone
any excess basis of the acquired                                                          • Property placed in service before
                                            property, if qualified Recovery               1981.
property is eligible for the special        Assistance property ceases to be
depreciation allowance.                                                                   • Certain public utility property which
                                            qualified Recovery Assistance property,       does not meet certain normalization
   If you acquired qualified property       if qualified cellulosic biomass ethanol       requirements.
through a like-kind exchange or             plant property ceases to be qualified         • Certain property acquired from
involuntary conversion after September      cellulosic biomass ethanol plant              related persons.
27, 2017, and the qualified property is     property, if qualified second generation      • Property acquired in certain
used property, only the excess basis of     biofuel plant property ceases to be           nonrecognition transactions.
the acquired property is eligible for the   qualified second generation biofuel           • Certain sound recordings, movies,
special depreciation allowance.             plant property, or if qualified disaster      and videotapes.
                                            assistance property ceases to be              • Property depreciated under the
        If you take the special
                                            qualified disaster assistance property in     income forecast method. The use of the
  !     depreciation allowance, you
CAUTION must reduce the amount on
                                            any year after the year you claim the         income forecast method is limited to
                                            special depreciation allowance, the           motion picture films, videotapes, sound
which you figure your regular
                                            excess benefit you received from              recordings, copyrights, books, and
depreciation or amortization deduction
                                            claiming the special depreciation             patents.
by the amount deducted. Also, you will
                                            allowance must be recaptured as
not have any AMT adjustment for                                                              If you use the income forecast
                                            ordinary income. For information on
depreciation for the qualified property.                                                  method for any property placed in
                                            depreciation recapture, see Pub. 946.
                                            Also, see Notice 2008-25, 2008-9 I.R.B.       service after September 13, 1995, you
Election out. You can elect, for any                                                      may owe interest or be entitled to a
class of property, to not deduct any        484, available at www.irs.gov/irb/
                                            2008-09_IRB/ar10.html for additional          refund for the 3rd and 10th tax years
special depreciation allowance for all                                                    beginning after the tax year the property
such property in such class placed in       guidance on recapture of qualified GO
                                            Zone property.                                was placed in service. For details, see
service during the tax year.                                                              Form 8866, Interest Computation Under
   To make an election, attach a            Line 15                                       the Look-Back Method for Property
statement to your timely filed return       Report on this line depreciation for          Depreciated Under the Income Forecast
(including extensions) indicating the       property that you elect to depreciate         Method.
class of property for which you are         under the unit-of-production method or           For property placed in service in the
making the election and that, for such      any other method not based on a term          current tax year, you can either include
class, you are not to claim any special     of years (other than the                      certain participations and residuals in
depreciation allowance.                                                                   the adjusted basis of the property or

                                                                -6-
deduct these amounts when paid. See         Section A                                     on your return filed no later than the due
section 167(g)(7). You cannot use this                                                    date (including extensions) for the tax
method to depreciate any amortizable                                                      year in which the assets included in the
section 197 intangible. For more details,   Line 17                                       general asset account were placed in
see the instructions on section 197         For tangible property placed in service       service. Once made, the election is
intangibles, later.                         in tax years beginning before 2018 and        irrevocable and applies to the tax year
• Intangible property, other than           depreciated under MACRS (“MACRS               for which the election is made and all
section 197 intangibles, including:         asset”), enter the deductions for the         later tax years.
                                            current year. To figure the deductions,
   1. Computer software. Use the                                                             For more information on depreciating
                                            see the instructions for line 19, column
straight line method over 36 months. A                                                    property in a general asset account, see
                                            (g).
longer period may apply to software                                                       Pub. 946.
leased under a lease agreement              Note. If you dispose of a portion of a
entered into after March 12, 2004, to a     MACRS asset and are required to (or
                                                                                          Section B
tax-exempt organization, governmental       elect to) take the basis of the asset into    Property acquired in a like-kind ex-
unit, or foreign person or entity (other    account, you must reduce the basis and        change or involuntary conversion.
than a partnership). See section 167(f)     depreciation reserve of the MACRS             Generally, you must depreciate the
(1)(C).                                     asset by the basis and depreciation           carryover basis of property you acquire
         If you elect the section 179       reserve attributable to the disposed          in a like-kind exchange or involuntary
  !      expense deduction or take the      portion as of the first day of the tax year   conversion during the current tax year
 CAUTION special depreciation allowance     before you compute the depreciation           over the remaining recovery period of
for qualified computer software, you        deduction for the current year. To figure     the property exchanged or involuntarily
must reduce the amount on which you         the depreciation deduction for the            converted. Use the same depreciation
figure your regular depreciation            remaining MACRS asset and the                 method and convention that was used
deduction by the amount deducted.           disposed portion, see the instructions        for the exchanged or involuntarily
                                            for line 19, column (g). For more             converted property. Treat any excess
   2. Any right to receive tangible         information, see Regulations section          basis as newly placed in service
property or services under a contract or    1.168(i)-8.                                   property. Figure depreciation separately
granted by a governmental unit (not                                                       for the carryover basis and the excess
acquired as part of a business).            Line 18                                       basis, if any.
   3. Any interest in a patent or           To simplify the computation of MACRS
                                                                                             These rules apply only to acquired
copyright not acquired as part of a         depreciation, you can elect to group
                                                                                          property with the same or a shorter
business.                                   assets into one or more general asset
                                                                                          recovery period or the same or a more
                                            accounts. The assets in each general
   4. Residential mortgage servicing                                                      accelerated depreciation method than
                                            asset account are depreciated as a
rights. Use the straight line method over                                                 the property exchanged or involuntarily
                                            single asset.
108 months.                                                                               converted. For additional rules, see
   5. Other intangible assets with a           Each general asset account must            Regulations section 1.168(i)-6(c) and
limited useful life that cannot be          include only assets that were placed in       Pub. 946.
estimated with reasonable accuracy.         service during the same tax year and
                                                                                              Election out. Instead of using the
Generally, use the straight line method     that have the same depreciation
                                                                                          above rules, you can elect, for
over 15 years. See Regulations section      method, recovery period, and
                                                                                          depreciation purposes, to treat the
1.167(a)-3(b) for details and exceptions.   convention. However, an asset cannot
                                                                                          adjusted basis of the exchanged
                                            be included in a general asset account if
        Prior years' depreciation, plus                                                   property as if it was disposed of at the
                                            the asset is used both for personal
        current year's depreciation, can                                                  time of the exchange or involuntary
  !
CAUTION never exceed the depreciable
                                            purposes and business/investment
                                                                                          conversion. Generally, treat the
                                            purposes.
basis of the property.                                                                    carryover basis and excess basis, if
                                               When an asset in an account is             any, for the acquired property as if
                                            disposed of, the amount realized              placed in service on the date you
Part III. MACRS                             generally must be recognized as               acquired it. The depreciable basis of the
Depreciation                                ordinary income. The unadjusted               new property is the adjusted basis of the
                                            depreciable basis and depreciation            exchanged or involuntarily converted
                                            reserve of the general asset account are      property plus any additional amount
   The term “Modified Accelerated Cost      not affected as a result of a disposition.    paid for it. See Regulations section
Recovery System” (MACRS) includes                                                         1.168(i)-6(i).
the General Depreciation System and            Special rules apply to passenger
                                            automobiles, assets generating foreign            To make the election, figure the
the Alternative Depreciation System.                                                      depreciation deduction for the new
Generally, MACRS is used to                 source income, assets converted to
                                            personal use, certain asset dispositions,     property in Part III. For listed property,
depreciate any tangible property placed                                                   use Part V. Attach a statement
in service after 1986. However, MACRS       and like-kind exchanges or involuntary
                                            conversions of property in a general          indicating “Election made under section
does not apply to films, videotapes, and                                                  1.168(i)-6(i)” for each property involved
sound recordings. For more details and      asset account. For more details, see
                                            Regulations section 1.168(i)-1(e) (as in      in the exchange or involuntary
exceptions, see Pub. 946.                                                                 conversion. The election must be made
                                            effect for tax years beginning on or after
                                            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

                                                                -7-
group). The election must be made on            7-year property includes:                  binding contract in effect at all times
your timely filed return (including          • Office furniture and equipment.             since June 9, 1996.
extensions). Once made, the election         • Railroad track.                                 Residential rental property is a
cannot be revoked without IRS consent.       • Any natural gas gathering line (as          building in which 80% or more of the
                                             defined in section 168(i)(17)) placed in      total rent is from dwelling units.
        If you trade in a vehicle used for
                                             service after April 11, 2005, the original
  !     employee business use,                                                                 Nonresidential real property is any
CAUTION complete Form 2106, Part II,
                                             use of which begins with you after April
                                             11, 2005, and is not under                    real property that is neither residential
Section D, instead of Form 4562, to                                                        rental property nor property with a class
                                             self-construction or subject to a binding
“elect out” of Regulations section                                                         life of less than 27.5 years.
                                             contract in existence before April 12,
1.168(i)-6. If you do not “elect out,” you                                                     50-year property includes any
                                             2005. Also, no AMT adjustment is
must use Form 4562 instead of Form                                                         improvements necessary to construct or
                                             required.
2106. See the Instructions for Form
2106.                                        • Any property that does not have a           improve a roadbed or right-of-way for
                                             class life and is not otherwise classified.   railroad track that qualifies as a railroad
                                                 10-year property includes:                grading or tunnel bore under section
Lines 19a Through 19i                                                                      168(e)(4).
Use lines 19a through 19i only for           • Vessels, barges, tugs, and similar
                                             water transportation equipment.                   There is no separate line to report
assets placed in service during the tax
year beginning in 2018 and depreciated       • Any single purpose agricultural or          50-year property. Therefore, attach a
                                             horticultural structure (see section 168(i)   statement showing the same
under the General Depreciation System                                                      information as required in columns (a)
                                             (13)).
(GDS), except for automobiles and
other listed property (which are reported    • Any tree or vine bearing fruit or nuts.     through (g). Include the deduction in the
in Part V).                                  • Any qualified smart electric meter          line 22 “Total” and write “See
                                             property.                                     attachment” in the bottom margin of the
Column (a) — Classification of prop-         • Any qualified smart electric grid           form.
erty. Sort the property you acquired         system property.                              Determining the classification. If
and placed in service during the tax             15-year property includes:                your depreciable property is not listed
year beginning in 2018 according to its      • Any municipal wastewater treatment          above, determine the classification as
classification (3-year property, 5-year      plant.                                        follows.
property, etc.) as shown in column (a) of    • Any telephone distribution plant and
lines 19a through 19i. The                                                                     1. Find the property's class life. See
                                             comparable equipment used for 2-way           the Table of Class Lives and Recovery
classifications for some property are        exchange of voice and data
shown below. For property not shown,                                                       Periods in Pub. 946.
                                             communications.
see Determining the classification, later.                                                     2. Use the following table to find the
                                             • Any section 1250 property that is a
   3-year property includes:                 retail motor fuels outlet (whether or not     classification in column (b) that
• A race horse that is more than 2           food or other convenience items are           corresponds to the class life of the
years old at the time it is placed in        sold there).                                  property in column (a).
service.                                     • Initial clearing and grading land                         (a)                      (b)
• Any horse (other than a race horse)        improvements for gas utility property.             Class life (in years)        Classification
that is more than 12 years old at the        • Certain electric transmission property              (See Pub. 946)
time it is placed in service.                specified in section 168(e)(3)(E)(v)           4 or less . . . . . . . . . .     3-year property
• Any qualified rent-to-own property (as     placed in service after April 11, 2005,        More than 4 but less than         5-year property
defined in section 168(i)(14)).              the original use of which begins with you      10 . . . . . . . . . . . . . .
   5-year property includes:                 after April 11, 2005, and is not under         10 or more but less than          7-year property
• Automobiles.                               self-construction or subject to a binding      16 . . . . . . . . . . . . . .
• Light general purpose trucks.              contract in existence before April 12,         16 or more but less than         10-year property
                                             2005.                                          20 . . . . . . . . . . . . . .
• Typewriters, calculators, copiers, and                                                    20 or more but less than         15-year property
duplicating equipment.                           20-year property includes:                 25 . . . . . . . . . . . . . .
• Any semi-conductor manufacturing           • Farm buildings (other than single            25 or more . . . . . . . . .     20-year property
equipment.                                   purpose agricultural or horticultural
• Any qualified technological                structures).
equipment.                                   • Municipal sewers not classified as          Column (b) — Month and year
• Any section 1245 property used in          25-year property.
                                                                                           placed in service. For lines 19h and
connection with research and                 • Initial clearing and grading land           19i, enter the month and year you
experimentation.                             improvements for electric utility
• Certain energy property specified in       transmission and distribution plants.         placed the property in service. If you
section 168(e)(3)(B)(vi).                                                                  converted property held for personal
                                                 25-year property is water utility         use to use in a trade or business or for
• Appliances, carpets, furniture, etc.,      property, which is:
used in a rental real estate activity.                                                     the production of income, treat the
                                             • Property that is an integral part of the    property as being placed in service on
• Any machinery equipment (other than        gathering, treatment, or commercial
any grain bin, cotton ginning asset,                                                       the conversion date.
                                             distribution of water that, without regard
fence, or other land improvement) used       to this classification, would be 20-year      Column (c) — Basis for depreciation
in a farming business and placed in          property.                                     (business/investment use only). To
service after 2017, in tax years ending      • Municipal sewers.                           find the basis for depreciation, multiply
after 2017. The original use of the          This classification does not apply to         the cost or other basis of the property by
property must begin with you.                property placed in service under a            the percentage of business/investment


                                                                 -8-
use. From that result, subtract any                tax year as placed in service (or            smart electric meter or any qualified
credits and deductions allocable to the            disposed of) on the midpoint of that tax     smart electric grid system property
property. The following are examples of            year. Enter “HY” in column (e).              placed in service after October 3, 2008.
some credits and deductions that                                                                   For 3-, 5-, 7-, or 10-year property
reduce the basis for depreciation.                     Mid-quarter convention. If the total
                                                   depreciable bases (before any special        eligible for the 200% declining balance
• Section 179 expense deduction.                   depreciation allowance) of MACRS             method, you can make an irrevocable
• Deduction for removal of barriers to             property placed in service during the        election to use the 150% declining
the disabled and the elderly.                                                                   balance method, switching to the
                                                   last 3 months of your tax year exceed
• Disabled access credit.                          40% of the total depreciable bases of        straight line method in the first tax year
• Enhanced oil recovery credit.                    MACRS property placed in service             that the straight line rate exceeds the
• Credit for alternative fuel vehicle              during the entire tax year, the              declining balance rate. The election
refueling property.                                                                             applies to all property within the
                                                   mid-quarter, instead of the half-year,
• Credit for employer-provided                     convention generally applies.                classification for which it is made and
childcare facilities and services.                                                              that was placed in service during the tax
• Any special depreciation allowance                   In determining whether the               year. You will not have an AMT
included on line 14.                               mid-quarter convention applies, do not       adjustment for any property included
• Any basis adjustment for investment              take into account the following.             under this election.
credit property. See section 50(c).                • Property that is being depreciated
                                                   under a method other than MACRS.                For 3-, 5-, 7-, or 10-year property
   For additional credits and deductions                                                        used in a farming business and placed
that affect the depreciable basis, see             • Any residential rental property,
                                                   nonresidential real property, or railroad    in service after 2017, in tax years ending
section 1016 and Pub. 946.                                                                      after 2017, the 150% declining balance
                                                   gradings and tunnel bores.
Column (d) — Recovery period.                      • Property that is placed in service and     method is no longer required. However,
Determine the recovery period from the             disposed of within the same tax year.        the 150% declining balance method will
following table. See Pub. 946 for more                                                          continue to apply to any 15- or 20-year
                                                       The mid-quarter convention treats all    property used in a farming business to
information on the recovery period for             property placed in service (or disposed
MACRS property.                                                                                 which the straight line method does not
                                                   of) during any quarter as placed in          apply or to property for which you elect
                                                   service (or disposed of) on the midpoint     the use of the 150% declining balance
Recovery Period for Most                           of that quarter. However, no                 method.
Property                                           depreciation is allowed under this
                                                   convention for property that is placed in
                                                                                                • 15- and 20-year property and
                                                                                                property used in a farming business.
                                     Recovery      service and disposed of within the same      The applicable method is the 150%
 Classification                         period     tax year. Enter “MQ” in column (e).          declining balance method, switching to
 3-year property . . . . . . . .         3 yrs.
 5-year property . . . . . . . .         5 yrs.        Mid-month convention. This               the straight line method in the first tax
 7-year property . . . . . . . .         7 yrs.    convention applies only to residential       year that the straight line rate exceeds
 10-year property . . . . . . .         10 yrs.    rental property (line 19h), nonresidential   the declining balance rate. For 3-, 5-, 7-,
 15-year property . . . . . . .         15 yrs.    real property (line 19i), and railroad       and 10-year property used in a farming
 20-year property . . . . . . .         20 yrs.    gradings and tunnel bores. It treats all     business and placed in service after
 25-year property . . . . . . .         25 yrs.    property placed in service (or disposed      2017, see 3-, 5-, 7-, or 10-year property
 Residential rental                                of) during any month as placed in            above.
 property . . . . . . . . . . . .      27.5 yrs.   service (or disposed of) on the midpoint     • Water utility property, residential
 Nonresidential real                               of that month. Enter “MM” in column (e).     rental property, nonresidential real
 property . . . . . . . . . . . .       39 yrs.                                                 property, or any railroad grading or
 Railroad gradings and tunnel                      Column (f) — Method. Applicable              tunnel bore. The only applicable
 bores . . . . . . . . . . . . . .      50 yrs.    depreciation methods are prescribed for      method is the straight line method.
                                                   each classification of property as
Column (e) — Convention. The                       follows. However, you can make an            Column (g) — Depreciation deduc-
applicable convention determines the               irrevocable election to use the straight     tion. To figure the depreciation
portion of the tax year for which                  line method for all property within a        deduction, you may use optional Tables
depreciation is allowable during a year            classification that is placed in service     A through E, which begin later. Multiply
property is either placed in service or            during the tax year. Enter “200 DB” for      column (c) by the applicable rate from
disposed of. There are three types of              200% declining balance, “150 DB” for         the appropriate table. See Pub. 946 for
conventions. To select the correct                 150% declining balance, or “S/L” for         complete tables. If you disposed of the
convention, you must know the type of              straight line.                               property during the current tax year,
property and when you placed the                   • 3-, 5-, 7-, and 10-year property.          multiply the result by the applicable
property in service.                               Generally, the applicable method is the      decimal amount from the tables in Step
                                                   200% declining balance method,               3 later. Or, you may compute the
   Half-year convention. This                      switching to the straight line method in     deduction yourself by completing the
convention applies to all property                 the first tax year that the straight line    following steps.
reported on lines 19a through 19g,                 rate exceeds the declining balance rate.
unless the mid-quarter convention                                                                  Step 1. Determine the depreciation
applies. It does not apply to residential          Note. The straight line method is the        rate as follows.
rental property, nonresidential real               only applicable method for trees and         • If you are using the 200% or 150%
property, and railroad gradings and                vines bearing fruit or nuts. The 150%        declining balance method in column (f),
tunnel bores. It treats all property placed        declining balance method is the only         divide the declining balance rate (use
in service (or disposed of) during any             applicable method for any qualified          2.00 for 200 DB or 1.50 for 150 DB) by
                                                                                                the number of years in the recovery

                                                                      -9-
period in column (d). For example, for          Section C                                         Use line 20a for all property
property depreciated using the 200 DB                                                         depreciated under ADS, except
method over a recovery period of 5                                                            property that does not have a class life,
years, divide 2.00 by 5 for a rate of 40%.      Lines 20a Through 20d                         residential rental and nonresidential real
You must switch to the straight line rate       Complete lines 20a through 20d for            property, water utility property, and
in the first year that the straight line rate   assets, other than automobiles and            railroad gradings and tunnel bores. Use
exceeds the declining balance rate.             other listed property, placed in service      line 20b for property that does not have
• If you are using the straight line            only during the tax year beginning in         a class life. Use line 20c for residential
method, divide 1.00 by the remaining            2018 and depreciated under the                rental property. Use line 20d for
number of years in the recovery period          Alternative Depreciation System (ADS).        nonresidential real property.
as of the beginning of the tax year (but        Report on line 17 MACRS depreciation
not less than one). For example, if there       on assets placed in service in prior             Residential rental property. The
are 61/2 years remaining in the recovery        years.                                        ADS recovery period for residential
period as of the beginning of the year,                                                       rental property placed in service after
divide 1.00 by 6.5 for a rate of 15.38%.           Under ADS, use the applicable              2017 is 30 years. Report depreciation
                                                depreciation method, the applicable           for these assets on line 20c. For more
   Step 2. Multiply the percentage rate         recovery period, and the applicable           information, see Pub. 946.
determined in Step 1 by the property's          convention to compute depreciation.
unrecovered basis (basis for                                                                     Water utility property and railroad
depreciation (as defined in column (c))            The following types of property must       gradings and tunnel bores. These
reduced by all prior years' depreciation.       be depreciated under ADS.                     assets are 50-year property under ADS.
                                                • Tangible property used                      There is no separate line to report
   Step 3. For property placed in               predominantly outside the United              50-year property. Therefore, attach a
service or disposed of during the current       States.                                       statement showing the same
tax year, multiply the result from Step 2       • Tax-exempt use property.                    information required in columns (a)
by the applicable decimal amount from           • Tax-exempt bond financed property.          through (g). Include the deduction in the
the tables below (based on the                  • Imported property covered by an             line 22 “Total” and write “See
convention shown in column (e)).                executive order of the President of the       attachment” in the bottom margin of the
                                                United States.                                form.
 Half-year (HY) convention. . . . . . .   0.5   • Property used predominantly in a            Column (b) — Month and year
 Mid-quarter (MQ)                               farming business and placed in service        placed in service. For 40-year
 convention                                     during any tax year in which you made         property, enter the month and year
                                                an election under section 263A(d)(3) to       placed in service or converted to use in
 Placed in service Placed
 (or disposed of)    in           Disposed
                                                not have the uniform capitalization rules     a trade or business or for the production
 during the:       service           of         of section 263A apply.                        of income.
 1st quarter . . .  0.875              0.125    • Any nonresidential real property,
                                                residential rental property, or qualified     Column (c) — Basis for depreciation
 2nd quarter . .    0.625              0.375
 3rd quarter . . .  0.375              0.625    improvement property held by an               (business/investment use only). See
 4th quarter . . .  0.125              0.875    electing real property trade business (as     the instructions for line 19, column (c).
                                                defined in section 163(j)(7)(B)).             Column (d) — Recovery period. On
                                                • Any property that has a recovery            line 20a, enter the property's class life.
                                                period of 10 years or more that is held
 Mid-month (MM)                                 by an electing farming business (as           Column (e) — Convention. Under
 convention                                     defined in section 163(j)(7)(C)).             ADS, the applicable conventions are the
 Placed in service    Placed                                                                  same as those used under GDS. See
 (or disposed of)       in         Disposed         Instead of depreciating property          the instructions for line 19, column (e).
 during the:          service         of        under GDS (line 19), you can make an          Column (g) — Depreciation deduc-
 1st month . . . .    0.9583          0.0417    irrevocable election for any                  tion. Figure the depreciation deduction
 2nd month . . . .    0.8750          0.1250    classification of property for any tax year   in the same manner as under GDS,
 3rd month . . . .    0.7917          0.2083    to use ADS. For residential rental and
 4th month . . . .    0.7083          0.2917                                                  except use the straight line method over
                                                nonresidential real property, you can         the ADS recovery period and use the
 5th month . . . .    0.6250          0.3750    make this election separately for each
 6th month . . . .    0.5417          0.4583                                                  applicable convention.
                                                property. You make this election by
 7th month . . . .    0.4583          0.5417                                                  MACRS recapture. If you later dispose
                                                completing line 20 of Form 4562.
 8th month . . . .    0.3750          0.6250                                                  of property you depreciated using
 9th month . . . .    0.2917          0.7083    Column (a) — Classification of prop-          MACRS, any gain on the disposition is
 10th month . . . .   0.2083          0.7917    erty. Use the following rules to              generally recaptured (included in
 11th month . . . .   0.1250          0.8750    determine the classification of the
 12th month . . . .   0.0417          0.9583                                                  income) as ordinary income up to the
                                                property under ADS.                           amount of the depreciation previously
                                                   Under ADS, the depreciation                allowed or allowable for the property.
                                                deduction for most property is based on       Depreciation, for this purpose, includes
   Short tax years. See Pub. 946 for            the property's class life. See section        any of the following deductions taken
rules on how to compute the                     168(g)(3) for special rules for               during the 2018 tax year.
depreciation deduction for property             determining the class life for certain        • Any section 179 expense deduction
placed in service in a short tax year.          property. See Pub. 946 for information        claimed on the property.
                                                on recovery periods for ADS and the
                                                Table of Class Lives and Recovery
                                                Periods.

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