Instructions for Form 4562

Transcription

1 2010 Instructions for Form 4562 Depreciation and Amortization (Including Information on Listed Property) Who Must File Department of the Treasury Internal Revenue Service Section references are to the Internal your business or for the production of Revenue Code unless otherwise noted. Except as otherwise noted, complete and income. file Form 4562 if you are claiming any of the Generally, you can depreciate: What s New following. Tangible property such as buildings, For tax years beginning in 2010, the Depreciation for property placed in machinery, vehicles, furniture, and maximum section 179 expense deduction is service during the 2010 tax year. equipment; and $500,000 ($535,000 for qualified enterprise A section 179 expense deduction (which Intangible property such as patents, zone property). This limit is reduced by the may include a carryover from a previous copyrights, and computer software. amount by which the cost of section 179 year). property placed in service during the tax Depreciation on any vehicle or other listed Exception. You cannot depreciate land. year exceeds $2 million. See the property (regardless of when it was placed in service). Section 179 Property instructions for Part I for more information. For tax years beginning in 2010 and A deduction for any vehicle reported on a Section 179 property is property that you form other than Schedule C (Form 1040), acquire by purchase for use in the active 2011, the definition of section 179 property Profit or Loss From Business, or Schedule conduct of your trade or business, and is is expanded to include certain qualified real C-EZ (Form 1040), Net Profit From one of the following. property, at the election of the taxpayer. See Business. Tangible personal property, including Section 179 Property for more information. Any depreciation on a corporate income cellular telephones and similar For tax years beginning after 2009, tax return (other than Form 1120S). telecommunications equipment. cellular telephones and similar Amortization of costs that begins during Qualified section 179 real For telecommunications equipment have been the 2010 tax year. more information, see Special rules for removed from the definition of listed qualified section 179 real property, later. If you are an employee deducting Other tangible property (except buildings For qualified property acquired after job-related vehicle expenses using either and their structural components) used as: September 8, 2010, you may be able to take the standard mileage rate or actual expenses, use Form 2106, Employee 1. An integral part of manufacturing, a depreciation deduction of 100% of the cost Business Expenses, or Form 2106-EZ, production, or extraction or of furnishing of the See the instructions for line Unreimbursed Employee Business transportation, communications, electricity, 14 for more information. Expenses, for this purpose. gas, water, or sewage disposal services; The election to accelerate research and 2. A research facility used in connection minimum tax credits in lieu of special File a separate Form 4562 for each with any of the activities in (1) above; or depreciation allowance applies only to business or activity on your return for which 3. A facility used in connection with any certain property placed in service before Form 4562 is required. If you need more of the activities in (1) above for the bulk January 1, For fiscal years ending space, attach additional sheets. However, storage of fungible commodities. after December 31, 2010, only minimum tax complete only one Part I in its entirety when Single purpose agricultural (livestock) or credits can be elected to be accelerated in computing your section 179 expense horticultural structures. lieu of special depreciation allowance for deduction. See the instructions for line 12 on Storage facilities (except buildings and round 2 extension See the page 4. their structural components) used in instructions for line 14. connection with distributing petroleum or The election to amortize expenses paid or Additional Information any primary product of petroleum. incurred in creating or acquiring musical For more information about depreciation and Off-the-shelf computer software. compositions or copyrights to musical amortization (including information on listed Section 179 property does not include compositions is no longer available for property), see the following. the following. property expenses paid or incurred in tax Pub. 463, Travel, Entertainment, Gift, and Property held for investment (section 212 years beginning after December 31, Car Expenses. property). See the instructions for line 16. Pub. 534, Depreciating Property Placed in Property used mainly outside the United Service Before States (except for property described in For the latest information on Form 4562, Pub. 535, Business Expenses. section 168(g)(4)). see Pub. 551, Basis of Assets. Property used mainly to furnish lodging or Pub. 946, How To Depreciate Property. in connection with the furnishing of lodging General Instructions Definitions (except as provided in section 50(b)(2)). Property used by a tax-exempt organization (other than a section 521 Depreciation farmers cooperative) unless the property is Purpose of Form used mainly in a taxable unrelated trade or Use Form 4562 to: Depreciation is the annual deduction that business. allows you to recover the cost or other basis Claim your deduction for depreciation and Property used by a governmental unit or of your business or investment property over amortization, foreign person or entity (except for property a certain number of years. Depreciation Make the election under section 179 to used under a lease with a term of less than starts when you first use the property in your expense certain property, and 6 months). business or for the production of income. It Air conditioning or heating units. Provide information on the business/ ends when you either take the property out investment use of automobiles and other of service, deduct all your depreciable cost See the instructions for Part I and Pub. listed or basis, or no longer use the property in 946. Cat. No Y

2 Special rules for qualified section 179 Exceptions. Listed property does not depreciation deduction (basis, method, etc.) real For any tax year beginning include: must be part of your permanent records. in 2010 or 2011, you can elect to treat 1. Photographic, phonographic, You may use the depreciation TIP service during the tax year as section 179 exclusively in a taxpayer s trade or business worksheet on page 18 to assist you in maintaining depreciation records. See Election for certain qualified or at the taxpayer s regular business However, the worksheet is designed only for section 179 real property in Part I for establishment; federal income tax purposes. You may need information on how to make this election. 2. Any computer or peripheral to keep additional records for accounting If the election is made, the term section equipment used exclusively at a regular and state income tax purposes. 179 property will include any qualified real business establishment and owned or property which is: leased by the person operating the Qualified leasehold improvement property establishment; as described in section 168(e)(6), 3. An ambulance, hearse, or vehicle Specific Instructions Qualified restaurant property as described used for transporting persons or property for in section 168(e)(7), or compensation or hire; or 4. Any truck or van placed in service Part I. Election To Expense Qualified retail improvement property as described in section 168(e)(8). after July 6, 2003, that is a qualified Certain Property Under This property is considered qualified nonpersonal use vehicle. section 179 real Section 179 For purposes of the exceptions above, a Note. An estate or trust cannot make this The maximum section 179 expense portion of the taxpayer s home is treated as election. deduction that may be expensed for a regular business establishment only if that qualified section 179 real property is portion meets the requirements for You can elect to expense part or all of $250,000 of the total cost of all section 179 deducting expenses attributable to the the cost of section 179 property (defined property placed in service in A 2010 business use of a home. However, for any earlier) that you placed in service during the deduction attributable to qualified real property listed in (1) above, the regular tax year and used predominantly (more than property which is disallowed under the trade business establishment of an employee is 50%) in your trade or business. or business income limitation (see Business his or her employer s regular business However, for taxpayers other than a Income Limit in chapter 2 of Pub. 946) is establishment. corporation, this election does not apply to carried over to The carryover amount any section 179 property you purchased and from 2010 is considered placed in service Commuting leased to others unless: on the first day of the 2011 tax year. Any Generally, commuting is defined as travel You manufactured or produced the such amounts that are not deducted in between your home and a work location. property or 2011, plus any 2011 disallowed section 179 However, travel that meets any of the The term of the lease is less than 50% of expense deductions attributable to qualified following conditions is not commuting. the property s class life and, for the first 12 section 179 real property, are treated as You have at least one regular work months after the property is transferred to property placed in service in 2011 for location away from your home and the travel the lessee, the deductions related to the purposes of computing depreciation. For is to a temporary work location in the same property allowed to you as trade or business further information on qualified section 179 trade or business, regardless of the expenses (except rents and reimbursed real property, see section 179(f) and Pub. distance. Generally, a temporary work amounts) are more than 15% of the rental 946. location is one where your employment is income from the expected to last 1 year or less. See Pub. Election. You must make the election on The IRS will release guidance 463 for details. Form 4562 filed with either: TIP concerning qualified section 179 real The travel is to a temporary work location The original return you file for the tax year The guidance will be outside the metropolitan area where you live the property was placed in service (whether published in the Internal Revenue Bulletin in and normally work. or not you file your return on time) or early Your home is your principal place of An amended return filed within the time Amortization business for purposes of deducting prescribed by law for the applicable tax expenses for business use of your home year. The election made on an amended Amortization is similar to the straight line and the travel is to another work location in return must specify the item of section 179 method of depreciation in that an annual the same trade or business, regardless of property to which the election applies and deduction is allowed to recover certain costs whether that location is regular or temporary the part of the cost of each such item to be over a fixed time period. You can amortize and regardless of distance. taken into account. The amended return such items as the costs of starting a must also include any resulting adjustments business, goodwill, and certain other Alternative Minimum Tax to taxable income. intangibles. See the instructions for Part VI. Election for certain qualified section (AMT) 179 real You can elect to Listed Property Depreciation may be an adjustment for the expense certain qualified real property that Listed property generally includes the AMT. However, no adjustment applies in you acquired as section 179 property for tax following. several instances. See Form 4626, years beginning in If you elect to treat Passenger automobiles weighing 6,000 Alternative Minimum Tax Corporations; this property as section 179 property, you pounds or less. See Limits for passenger Form 6251, Alternative Minimum must elect the application of the special automobiles on page 12. Tax Individuals; Schedule I (Form 1041), rules for qualified real property under Any other property used for transportation Alternative Minimum Tax Estates and section 179(f) in order for the term section if the nature of the property lends itself to Trusts; and the related instructions. 179 property to include qualified real personal use, such as motorcycles, pick-up property placed in service during the tax trucks, sport utility vehicles, etc. Recordkeeping year. Any property used for entertainment or Except for Part V (relating to listed property), To make the election, attach a separate recreational purposes (such as the IRS does not require you to submit statement to your original 2010 tax return, photographic, phonographic, detailed information with your return on the whether or not you file it timely, indicating communication, and video recording depreciation of assets placed in service in that you are electing the application of equipment). previous tax years. However, the section 179(f) of the Internal Revenue Code Computers or peripheral equipment. information needed to compute your for the tax year. Then, indicate on the -2-

3 statement your election to expense certain property, see Pub. 954, Tax Incentives for community by a renewal community qualified real property under section 179 on Distressed Communities. business. your tax return. The election to expense The maximum section 179 deduction is must specify one or more of the three types Line 2 increased for qualified section 179 disaster of qualified real property (described under Enter the cost of all section 179 property assistance property placed in service in a Special rules for qualified section 179 real (including the total cost of qualified real federally declared disaster area where the property, earlier) to which the election property that you elect to treat as section disaster occurred after December 31, 2007, applies, the cost of each such type, and the 179 property) you placed in service during and before January 1, The property portion of cost of each such type to be taken the tax year. This includes the total cost must be placed in service by you on or into account. Report this information on line from qualified real property placed in service before the date which is the last day of the 6 of Form For more information how during the tax year. Also, include the cost of third calendar year following the applicable to report your election, see the instructions the following. federally declared disaster date to be for Line 6, later. Any listed property from Part V. qualified section 179 disaster assistance You can also make the election by Any property placed in service by your attaching a separate statement (containing spouse, even if you are filing a separate the same information discussed above) to Example. A federally declared disaster return. This includes qualified section 179 an amended return for 2010 filed within the area in Purple County occurred on January real property your spouse made the election time prescribed by law. The amended return 2, John Smith placed in service to treat as section 179 property for must also include any resulting adjustments property on December 30, This 50% of the cost of section 179 property to the tax year. property meets all requirements to be that is also qualified empowerment zone considered qualified section 179 disaster property placed in service before January 1, Revocation. The election (or any assistance property for 2010 as it was specification made in the election) can be placed in service on or before December 31, revoked without obtaining IRS approval by Line 3 filing an amended return. The amended return must be filed within the time The maximum section 179 deduction is The amount of section 179 property for prescribed by law for the applicable tax increased by the smaller of: which you can make the election is limited to year. The amended return must include any $100,000 or the maximum dollar amount on line 1. In resulting adjustments to taxable income or The cost of the qualified section 179 most cases, this amount is reduced if the to the tax liability (for example, allowable disaster assistance property placed in cost of all section 179 property placed in depreciation in that tax year for the item of service in a federally declared disaster area service in 2010 is more than $2 million. section 179 property which the revocation where the disaster occurred after December To assist you in determining the amount pertains). For more information and 31, 2007, and before January 1, 2010 to write on line 3, see Worksheet 1, on page examples, see Regulations section (including such property placed in service by 4. Once made, the revocation is your spouse, even if you are filing a However, if you placed qualified section irrevocable. separate return). 179 disaster assistance property in service A list of the federally declared disaster in a federally declared disaster area on or If you elect to expense section 179 areas is available at the Federal Emergency before the date which is the last day of the! property, you must reduce the Management Agency (FEMA) web site at third calendar year following the applicable amount on which you figure your disaster date where the disaster occurred depreciation or amortization deduction after December 31, 2007, and before (including any special depreciation For purposes of the increased January 1, 2010, the amount of property for allowance) by the section 179 expense! section 179 expense deduction, which you can make the election is reduced deduction. qualified section 179 disaster if the cost of all section 179 property placed assistance property that is located in an in service during the year exceeds $2 million Line 1 empowerment zone is treated as qualified increased by the smaller of: Generally, the maximum section 179 empowerment zone property only if you $600,000 or expense deduction is $500,000 for section elect not to treat the property as qualified The cost of qualified section 179 disaster 179 property placed in service in 2010 section 179 disaster assistance assistance property placed in service in a during the tax year beginning in federally declared disaster area where the Qualified real property that is elected to For more information, including the disaster occurred after December 31, 2007, be treated as section 179 property is limited definition of qualified section 179 disaster and before January 1, to $250,000 of the maximum section 179 assistance property and the eligible disaster areas, see Pub Also, see section For more information, see section deduction of $500,000 for For more 179(e)(2). 179(e)(2) and Pub information, see Special rules for qualified For a partnership (other than an electing section 179 real property, earlier. Recapture rule. If any qualified large partnership), these limitations apply to empowerment zone property placed in You can use Worksheet 1, on page the partnership and each partner. For an TIP service during the current year ceases to be 4, to assist you in determining the electing large partnership, the limitations used in an empowerment zone by an amount to write on line 1. You can apply only to the partnership. For an S enterprise zone business in a later year, the also use the worksheet to figure the corporation, these limitations apply to the S benefit of the increased section 179 maximum qualified section 179 real property corporation and each shareholder. For a expense deduction must be reported as deduction allowed for controlled group, all component members other income on your return. Similar rules For an enterprise zone business, the are treated as one taxpayer. apply to qualified Liberty Zone property that maximum deduction is increased by the ceases to be used in the Liberty Zone, smaller of: Line 5 qualified section 179 GO Zone property that $35,000 or ceases to be used in the GO Zone, qualified If line 5 is zero, you cannot elect to expense The cost of section 179 property that is section 179 Recovery Assistance property any section 179 In this case, skip also qualified empowerment zone property that ceases to be used in the Recovery lines 6 through 11, enter zero on line 12, purchased (including such property placed Assistance area, qualified section 179 and enter the carryover of any disallowed in service or purchased by your spouse, disaster assistance property that ceases to deduction from 2009 on line 13. even if you are filing a separate return). be used in the applicable federally declared If you are married filing separately, you For more information, including disaster area, and qualified renewal property and your spouse must allocate the dollar definitions of qualified empowerment zone that ceases to be used in a renewal limitation for the tax year. To do so, multiply -3-

4 Worksheet 1. Worksheet for Lines 1, 2, and 3 Keep for Your Records how to apply the business income limitation for the section 179 expense deduction. Individuals. Enter the smaller of line 5 or Maximum section 179 limitation calculation. the total taxable income from any trade or 1. Total cost of qualified section 179 real property placed in service in 2010 during business you actively conducted, computed the tax year beginning in 2010 of the type(s) of property for which you are without regard to any section 179 expense making the election... deduction, the deduction for one-half of self-employment taxes under section 164(f), 2. $250,000 of the maximum section 179 deduction limitation of $500,000 allowed or any net operating loss deduction. Also for 2010 can be expensed for qualified section 179 real property... $250,000 include all wages, salaries, tips, and other 3. Enter the smaller of line 1 or line 2... compensation you earned as an employee (from Form 1040, line 7). Do not reduce this 4. Enter total cost of section 179 property (except qualified section 179 real property) placed in service in 2010 during the tax year beginning in amount by unreimbursed employee business expenses. If you are married filing 5. The maximum section 179 deduction limitation for $500,000 a joint return, combine the total taxable 6. If you have an enterprise zone business (see the instructions for Line 1, earlier), incomes for you and your spouse. enter the smaller of $35,000 or the cost of the qualified section 179 property that is also qualified empowerment zone If you have qualified section 179 disaster assistance property (see the instructions for Line 1, earlier), enter the smaller of $100,000 or the cost of the qualified section 179 disaster assistance property Add lines 5, 6, and 7. Enter this amount here and on Form 4562, line 1... Partnerships. Enter the smaller of line 5 or the partnership s total items of income and expense described in section 702(a) from any trade or business the partnership actively conducted (other than credits, tax-exempt income, the section 179 expense deduction, and guaranteed payments under section 707(c)). Maximum threshold cost of section 179 property before reduction in limitation calculation. 9. Add lines 1 and 4. Enter this amount here and on Form 4562, line 2... S corporations. Enter the smaller of line 5 or the corporation s total items of income 10. Base maximum threshold cost of section 179 property before reduction in and expense described in section 1366(a) limitation for $2,000,000 from any trade or business the corporation 11. If you have qualified section 179 disaster assistance property (see the actively conducted (other than credits, instructions for Line 3, earlier), enter the smaller of $600,000 or the cost of the tax-exempt income, the section 179 qualified section 179 disaster assistance property... expense deduction, and the deduction for compensation paid to the corporation s 12. Add lines 10 and 11. Enter this amount here and on Form 4562, line 3... Maximum elected cost for Form 4562, lines 6 and 7, column (c). 13. Add lines 3 and Enter the smaller of line 8 or line 13. The total amount you enter on Form 4562, lines 6 and 7, column (c), cannot exceed this amount... shareholder-employees). Corporations other than S corporations. Enter the smaller of line 5 or the corporation s taxable income before the section 179 expense deduction, net operating loss deduction, and special deductions (excluding items not derived from a trade or business actively conducted the total limitation that you would otherwise entire cost of the You can by the corporation). enter on line 5 by 50%, unless you both depreciate the amount you do not expense. elect a different allocation. If you both elect See the line 19 and line 20 instructions. Line 12 a different allocation, multiply the total To report your share of a section 179 The limitations on lines 5 and 11 apply to limitation by the percentage elected. The expense deduction from a partnership or an the taxpayer, and not to each separate sum of the percentages you and your S corporation, write from Schedule K-1 business or activity. Therefore, if you have spouse elect must equal 100%. (Form 1065) or from Schedule K-1 (Form more than one business or activity, you may Do not enter on line 5 more than your 1120S) across columns (a) and (b). allocate your allowable section 179 expense share of the total dollar limitation. deduction among them. Line 10 To do so, write Summary at the top of Line 6 The carryover of disallowed deduction from Part I of the separate Form 4562 you are Do not include any listed property on line is the amount of section 179 property, completing for the total amounts from all Enter the elected section 179 cost of listed if any, you elected to expense in previous businesses or activities. Do not complete property in column (i) of line 26. years that was not allowed as a deduction the rest of that form. On line 12 of the Form Column (a) Description of because of the business income limitation. If 4562 you prepare for each separate Enter a brief description of the property you you filed Form 4562 for 2009, enter the business or activity, enter the amount elect to expense (e.g., truck, office furniture, amount from line 13 of your 2009 Form allocated to the business or activity from the etc.). For all qualified section 179 real Summary. No other entry is required in property, enter qualified real Part I of the separate Form 4562 prepared Line 11 for each business or activity. Column (b) Cost (business use only). Enter the cost of the If you The total cost you can deduct is limited to your taxable income from the active conduct Part II. Special acquired the property through a trade-in, do not include any carryover basis of the of a trade or business during the year. You Depreciation Allowance property traded in. Include only the excess are considered to actively conduct a trade or of the cost of the property over the value of business only if you meaningfully participate and Other Depreciation the property traded in. in its management or operations. A mere passive investor is not considered to actively Line 14 Column (c) Elected cost. Enter the conduct a trade or business. amount you elect to expense (including the For qualified property (defined below) combined cost of all qualified real property Note. If you have to apply another Code placed in service during the tax year, you that you elected to treat as section 179 section that has a limitation based on may be able to take an additional 50% (or property). You do not have to expense the taxable income, see Pub. 946 for rules on 100%, if applicable) special depreciation -4-

5 allowance. The special depreciation d. Qualified leasehold improvement after December 31, 2007, is eligible for a allowance applies only for the first year the 50% special depreciation allowance. If a property is placed in service. The allowance binding contract to acquire the property is an additional deduction you can take after In addition, substantially all (80% or existed before January 1, 2008, the property any section 179 expense deduction and more) of the use of the property described in does not qualify. before you figure regular depreciation under (a) through (d) above must be in the building Qualified property is: the modified accelerated cost recovery and placed in service no later than 90 days Tangible property depreciated under system (MACRS). after the building is placed in service. MACRS with a recovery period of 20 years Qualified You can take the For information, see section 1400N(d)(6) or less. special depreciation allowance for certain and Notice , I.R.B at Water utility property (see 25-year qualified property acquired after September property on page 9). 8, 2010, and placed in service before The following rules also apply. Computer software defined in and January 1, 2012, specified GO Zone The 50% special depreciation allowance depreciated under section 167(f)(1). extension property, qualified cellulosic applies to specified GO Zone extension Qualified leasehold improvement biofuel plant property, certain qualified property (defined above). For nonresidential property acquired after December 31, 2007, real or residential rental property that is Qualified property must also be placed in and placed in service before January 1, specified GO Zone extension property, only service before September 9, 2010, or after 2013, qualified reuse and recycling property, the adjusted basis of the property December 31, 2011, and before January 1, and certain qualified disaster assistance attributable to manufacture, construction, or 2013 (or before September 9, 2010, or after production before January 1, 2012, is December 31, 2012, and before January 1, Certain qualified property acquired eligible for the special depreciation 2014, for certain property with a long after September 8, 2010, and placed in allowance. production period and for certain aircraft). service before January 1, Certain You must have acquired specified GO The original use of the property must begin qualified property acquired after September Zone extension property (defined earlier) by with you after December 31, , 2010, is eligible for a 100% special purchase after August 27, If a binding See Certain qualified property acquired depreciation allowance. To qualify, the contract to acquire the property existed after September 8, 2010, and placed in property must be placed in service before before August 28, 2005, the property does service before January 1, 2012, earlier, for January 1, 2012 (before January 1, 2013, not qualify. information about the temporary increased for certain property with a long production The original use of the property within the 100% special depreciation allowance for period and for certain aircraft). The other GO Zone must begin with you after August certain property acquired after September 8, requirements for qualified property to be 27, eligible for a 100% special depreciation Substantially all (80% or more) of the use of the property must be in the specified See Pub. 946 for more information. allowance are identical as the requirements areas of the GO Zone in the active conduct Qualified reuse and recycling for qualified property to be eligible for a 50% of your trade or business. Certain qualified reuse and special depreciation allowance as discussed For property you sold and leased back or recycling property (defined below) placed in under Certain qualified property acquired for self-constructed property, special rules service after August 31, 2008, is eligible for after December 31, 2007, and placed in apply. See section 1400N(d)(3). a 50% special depreciation allowance. service before January 1, 2013, later. Qualified cellulosic biofuel plant Qualified reuse and recycling property See section 168(k)(5) and Pub. 946 for Qualified cellulosic biofuel plant includes any machinery and equipment (not more information. property is property used solely in the including buildings or real estate), along with United States to produce cellulosic biofuel. any appurtenance, that is used exclusively If you elect out of the 100% special Cellulosic biofuel is any liquid fuel which is to collect, distribute, or recycle qualified! depreciation allowance for property produced from any lignocellulosic or reuse and recyclable materials. This acquired after September 8, 2010, hemicellulosic matter that is available on a includes software necessary to operate such and placed in service before January 1, renewable or recurring basis. For example, equipment. See section 168(m)(3) for more 2012 (before January 1, 2013, for certain lignocellulosic or hemicellulosic matter that information. property with a long production period and for certain aircraft), the property does not is available on a renewable or recurring Qualified reuse and recycling property qualify for the 50% special depreciation basis includes bagasse (from sugar cane), must also meet all of the following tests. allowance. See Election out on page 7 for corn stalks, and switchgrass. The property must be depreciated under more information. The 50% special depreciation allowance MACRS. applies to qualified cellulosic biofuel plant The property must have a useful life of at Specified GO Zone extension The property must also meet the least 5 years. Specified GO Zone extension following requirements. You must have acquired the property by property (defined below), is nonresidential The original use of the property must purchase after August 31, If a binding real property or residential rental begin with you after December 20, contract to acquire the property existed Specified GO Zone extension property is: You must have acquired the property by before September 1, 2008, the property purchase after December 20, If a does not qualify. 1. Nonresidential real property or binding contract to acquire the property The property must be placed in service residential rental property placed in service existed before December 21, 2006, the after August 31, in specified areas of the GO Zone (as property does not qualify. The original use of the property must defined in section 1400N(d)(6)(C)) before Qualified cellulosic biofuel plant property begin with you after August 31, January 1, 2012, or must be placed in service for use in your For self-constructed property, special 2. Any of the following types of property trade or business or for the production of rules apply. See section 168(m)(2)(C). placed in service in a building described above before January 1, income before January 1, Qualified reuse and recycling property a. Tangible property depreciated under For property you sold and leased back or does not include rolling stock or other MACRS with a recovery period of 20 years for self-constructed property, special rules equipment used to transport reuse and or less, apply. See section 168(l)(5). recyclable materials or any property to b. Water utility property (see 25-year Certain qualified property acquired which section 168(g) or (k) applies. property on page 9), after December 31, 2007, and placed in Qualified disaster assistance c. Computer software defined in and service before January 1, Certain You may be able to take a 50% depreciated under section 167(f)(1), or qualified property (defined below) acquired special depreciation allowance for qualified -5-

6 disaster assistance property (defined below) December 31, 2009, but before January 1, Any qualified restaurant property (as placed in service in federally declared defined in section 168(e)(7)); or disaster areas where the disaster occurred For fiscal year taxpayers with a tax year Any qualified retail improvement property after December 31, 2007, and before ending after December 31, 2010, an election (as defined in section 168(e)(8)). January 1, A list of the federally to claim pre-2006 unused minimum tax declared disaster areas is available at the Specified GO Zone extension property, credits in lieu of claiming the special FEMA web site at also does not include: depreciation allowance made by a Any tax-exempt bond financed property Qualified disaster assistance property is: corporation for either its first tax year ending under section 103; Tangible property depreciated under after March 31, 2008, or its first tax year Any property described in section MACRS with a recovery period of 20 years ending after December 31, 2008, continues 1400N(p)(3); or or less, to apply to round 2 extension property (as Other bonus depreciation property to Computer software defined in and defined in section 168(k)(4)(I)), unless the which section 168(k) applies. depreciated under section 167(f)(1), corporation makes an election not to apply Water utility property (see 25-year the section 168(k)(4) election to round 2 In addition, qualified cellulosic biofuel property on page 9), extension If a corporation did not plant property does not include the Qualified leasehold improvement make a section 168(k)(4) election for either following: property, its first tax year ending after March 31, Any tax-exempt bond financed property Nonresidential real property, or 2008, or its first tax year ending after under section 103. Residential rental December 31, 2008, the corporation may Any property for which a deduction was elect for its first tax year ending after taken under section 179C for certain Qualified disaster assistance property December 31, 2010, to claim pre-2006 qualified refinery must also meet all of the following rules. unused minimum tax credits in lieu of Other bonus depreciation property to The property must rehabilitate property claiming the special depreciation allowance which section 168(k) applies. damaged, or replace property destroyed or for only round 2 extension condemned, as a result of the applicable If you make an election to accelerate Qualified disaster assistance property federally declared disaster area. these credits in lieu of claiming the special does not include: The property must be similar in nature to, depreciation allowance for qualified Other bonus depreciation property to and located in the same county as, the property, you must not take the 50% or which section 168(k), (l), or (m) or section property being rehabilitated or replaced. 100% special depreciation allowance for the 1400N(d) applies. Substantially all (80% or more) of the use property and must depreciate the basis in Any property described in section of the property must be in the active conduct the property under MACRS using the 1400N(p)(3). of your trade or business in a federally straight line method. See Lines 19a Through Any tax-exempt bond financed property declared disaster area where the disaster 19i on page 8 for more information. under section 103. occurred after December 31, 2007, and Any property required to be depreciated before January 1, Once made, these elections cannot be under the alternative depreciation system You must have acquired the property by revoked without IRS consent. (ADS) (that is, not property for which you purchase on or after the applicable disaster For more information on making this elected to use ADS). date. If a binding contract to acquire the election, see Form 3800, General Business property existed before the applicable Credit; Form 8827, Credit for Prior Year See sections 168(k), 168(l), 168(m), disaster date, the property does not qualify. Minimum Tax Corporations; and related 168(n), and 1400N(d) for additional The original use of the property within the instructions. Also, see Rev. Proc , information. Also, see Pub applicable disaster area must begin with you I.R.B. 1082, available at on or after the applicable disaster date. How to figure the allowance. Figure the The property is placed in service by you special depreciation allowance by Rev. Proc , I.R.B. 449, on or before the date which is the last day of multiplying the depreciable basis of the available at the third calendar year following the property by 50% (100%, if applicable). and applicable disaster date (the fourth calendar Rev. Proc , I.R.B. 150, To figure the depreciable basis, subtract year in the case of nonresidential real available at from the business/investment portion of the property and residential rental property). cost or other basis of the property any For property you sold and leased back or credits and deductions allocable to the for self-constructed property, special rules The IRS will release guidance The following are examples of apply. See section 168(n)(2)(C). TIP concerning round 2 extension some credits and deductions that reduce the The guidance will be For more information, see Pub depreciable basis. published in the Internal Revenue Bulletin in Section 179 expense deduction. Election to accelerate research and Deduction for removal of barriers to the minimum tax credits in lieu of special Exceptions. Qualified property does disabled and the elderly. depreciation allowance. An election to not include: Disabled access credit. claim pre-2006 unused research credits or Listed property used 50% or less in a Enhanced oil recovery credit. minimum tax credits in lieu of claiming the qualified business use (as defined in the Credit for employer-provided childcare special depreciation allowance ( section instructions for lines 26 and 27); facilities and services. 168(k)(4) election ) made by a corporation Any property required to be depreciated Basis adjustment to investment credit for either its first tax year ending after March under the alternative depreciation system property under section 50(c). 31, 2008, or its first tax year ending after (ADS) (that is, not property for which you For additional credits and deductions that December 31, 2008, continues to apply to elected to use ADS); affect the depreciable basis, see section certain extension property (as defined in Qualified Liberty Zone leasehold Also, see Pub section 168(k)(4)(H)), unless the corporation improvement property; made an election not to apply the section Property placed in service and disposed Note. If you acquired qualified property 168(k)(4) election to extension property for of in the same tax year; through a like-kind exchange or involuntary its first tax year ending after December 31, Property converted from business or conversion, the carryover basis and any Generally, extension property is long income-producing use to personal use in the excess basis of the acquired property is production period property and same tax year it is acquired; eligible for the special depreciation noncommercial aircraft if acquired after Property for which you elected not to allowance. See Regulations section March 31, 2008, and placed in service after claim any special depreciation allowance; 1.168(k)-1(f)(5). -6-

7 If you take the 100% or 50% special unit-of-production method or any other year in creating or acquiring musical! depreciation allowance, you must method not based on a term of years (other compositions or copyrights to musical reduce the amount on which you than the retirement-replacement-betterment compositions placed in service during the figure your regular depreciation or method). tax year. If you make the election, amortize amortization deduction by the amount the expenses ratably over a 5-year period deducted. Also, you will not have any AMT Attach a separate sheet showing: beginning with the month the property is adjustment for the property if the A description of the property and the placed in service in tax years beginning depreciable basis of the property for the depreciation method you elect that excludes before January 1, See section AMT is the same as for the regular tax. the property from MACRS or the 167(g)(8). This election does not apply to Election out. You can elect, for any class Accelerated Cost Recovery System (ACRS); the following: of property, to not deduct any special and 1. Expenses that are qualified creative depreciation allowance for all such property The depreciable basis (cost or other basis expenses under section 263A(h); in such class placed in service during the reduced, if applicable, by salvage value, any 2. Property to which a simplified tax year. section 179 expense deduction, deduction procedure established under section 263A(j) for removal of barriers to the disabled and To make an election, attach a statement applies; the elderly, disabled access credit, to your timely filed return (including 3. Property that is an amortizable enhanced oil recovery credit, credit for extensions) indicating the class of property section 197 intangible; or employer-provided childcare facilities and for which you are making the election and services, any special depreciation 4. Expenses that would not be allowable that, for such class you are not to claim any allowance, and any other applicable as a deduction. special depreciation allowance. deduction or credit). Intangible property, other than section The election must be made separately by 197 intangibles, including: each person owning qualified property (for For additional credits and deductions that 1. Computer software. Use the straight example, by the partnership, by the S may affect the depreciable basis, see line method over 36 months. A longer period corporation, or by the common parent of a section Also, see section 50(c) to may apply to software leased under a lease consolidated group). determine the basis adjustment for agreement entered into after March 12, If you timely filed your return without investment credit 2004, to a tax-exempt organization, making an election, you can still make the governmental unit, or foreign person or election by filing an amended return within 6 Line 16 entity (other than a partnership). See section months of the due date of the return Enter the total depreciation you are claiming 167(f)(1)(C). (excluding extensions). Write Filed for the following types of property (except pursuant to section on the listed property and property subject to a If you elect the section 179 expense amended return. section 168(f)(1) election).! deduction or take the special Once made, the election cannot be ACRS property (pre-1987 rules). See depreciation allowance for qualified revoked without IRS consent. Pub computer software, you must reduce the amount on which you figure your regular Note. If you elect not to have any special Property placed in service before depreciation deduction by the amount depreciation allowance apply, the property Certain public utility property which does deducted. may be subject to an AMT adjustment for not meet certain normalization 2. Any right to receive tangible property depreciation. requirements. or services under a contract or granted by a Recapture. When you dispose of property Certain property acquired from related governmental unit (not acquired as part of a for which you claimed a special depreciation persons. business). allowance, any gain on the disposition is Property acquired in certain 3. Any interest in a patent or copyright generally recaptured (included in income) as nonrecognition transactions. not acquired as part of a business. ordinary income up to the amount of the Certain sound recordings, movies, and 4. Residential mortgage servicing rights. special depreciation allowance you videotapes. Use the straight line method over 108 deducted. If qualified GO Zone property Property depreciated under the income months. (including specified GO Zone property) forecast method. The use of the income ceases to be qualified GO Zone property, if 5. Other intangible assets with a limited forecast method is limited to motion picture qualified Recovery Assistance property useful life that cannot be estimated with films, videotapes, sound recordings, ceases to be qualified Recovery Assistance reasonable accuracy. Generally, use the copyrights, books, and patents. property, if qualified cellulosic biomass straight line method over 15 years. See ethanol plant property ceases to be qualified If you use the income forecast method Regulations section 1.167(a)-3(b) for details cellulosic biomass ethanol plant property, if for any property placed in service after and exceptions. qualified cellulosic biofuel plant property September 13, 1995, you may owe interest ceases to be qualified cellulosic biofuel plant or be entitled to a refund for the 3rd and 10th tax years beginning after the tax year Prior years depreciation, plus property, or if qualified disaster assistance the property was placed in service. For! current year s depreciation, can property ceases to be qualified disaster details, see Form 8866, Interest never exceed the depreciable basis assistance property in any year after the Computation Under the Look-Back Method of the year you claim the special depreciation allowance, the excess benefit you received for Property Depreciated Under the Income from claiming the special depreciation Forecast Method. Part III. MACRS allowance must be recaptured as ordinary For property placed in service in the income. For information on depreciation current tax year, you can either include Depreciation recapture, see Pub Also, see Notice certain participations and residuals in the The term Modified Accelerated Cost , I.R.B. 484, available at adjusted basis of the property or deduct Recovery System (MACRS) includes the for these amounts when paid. See section General Depreciation System and the additional guidance on recapture of qualified 167(g)(7). You cannot use this method to Alternative Depreciation System. Generally, GO Zone depreciate any amortizable section 197 MACRS is used to depreciate any tangible intangible. See page 14 of the instructions property placed in service after Line 15 for more details on section 197 intangibles. However, MACRS does not apply to films, Report on this line depreciation for property You can elect to amortize all applicable videotapes, and sound recordings. For more that you elect to depreciate under the expenses paid or incurred in the current details and exceptions, see Pub

8 Section A These rules apply only to acquired property with the same or a shorter recovery period or the same or a more accelerated Any horse (other than a race horse) that is more than 12 years old at the time it is placed in service. Line 17 depreciation method than the property Any qualified rent-to-own property (as For tangible property placed in service in tax exchanged or involuntarily converted. For defined in section 168(i)(14)). years beginning before 2010 and additional rules, see Regulations section 5-year property includes: depreciated under MACRS, enter the 1.168(i)-6(c) and Pub Automobiles. deductions for the current year. To figure the Election out. Instead of using the Light general purpose trucks. deductions, see the instructions for line 19, above rules, you can elect, for depreciation Typewriters, calculators, copiers, and column (g). purposes, to treat the adjusted basis of the duplicating equipment. exchanged property as if it was disposed of Any semi-conductor manufacturing Line 18 at the time of the exchange or involuntary equipment. To simplify the computation of MACRS conversion. Generally, treat the carryover Any computer or peripheral equipment. depreciation, you can elect to group assets basis and excess basis, if any, for the Any section 1245 property used in into one or more general asset accounts. acquired property as if placed in service on connection with research and The assets in each general asset account the date you acquired it. The depreciable experimentation. are depreciated as a single asset. basis of the new property is the adjusted Certain energy property specified in basis of the exchanged or involuntarily section 168(e)(3)(B)(vi). Each general asset account must include converted property plus any additional Appliances, carpets, furniture, etc., used only assets that were placed in service amount paid for it. See Regulations section in a rental real estate activity. during the same tax year with the same 1.168(i)-6(i). asset class (if any), depreciation method, 7-year property includes: recovery period, and convention. However, To make the election, figure the Office furniture and equipment. an asset cannot be included in a general depreciation deduction for the new property Railroad track. asset account if the asset is used both for in Part III. For listed property, use Part V. Any motorsports entertainment complex personal purposes and business/investment Attach a statement indicating Election (as defined in section 168(i)(15)) placed in purposes. made under section 1.168(i)-6(i) for each service before January 1, property involved in the exchange or Any natural gas gathering line (as defined When an asset in an account is disposed involuntary conversion. The election must in section 168(i)(17)) placed in service after of, the amount realized generally must be be made separately by each person April 11, 2005, the original use of which recognized as ordinary income. The acquiring replacement property (for begins with you after April 11, 2005, and is unadjusted depreciable basis and example, by the partnership, by the S not under self-construction or subject to a depreciation reserve of the general asset corporation, or by the common parent of a binding contract in existence before April 12, account are not affected as a result of a consolidated group). The election must be Also, no AMT adjustment is required. disposition. made on your timely filed return (including Any property that does not have a class Special rules apply to passenger extensions). Once made, the election life and is not otherwise classified. automobiles, assets generating foreign cannot be revoked without IRS consent. 10-year property includes: source income, assets converted to Vessels, barges, tugs, and similar water personal use, certain asset dispositions, and If you trade in a vehicle used for transportation equipment. like-kind exchanges or involuntary! employee business use, complete Any single purpose agricultural or conversions of property in a general asset Form 2106, Part II, Section D, horticultural structure (see section account. For more details, see Regulations instead of Form 4562, to elect out of 168(i)(13)). section 1.168(i)-1. Regulations section 1.168(i)-6. If you do not Any tree or vine bearing fruit or nuts. elect out, you must use Form 4562 instead To make the election, check the box on Any qualified smart electric meter of Form See the Instructions for Form line 18. You must make the election on your return filed no later than the due date Any qualified smart electric grid system (including extensions) for the tax year in Lines 19a Through 19i which the assets included in the general 15-year property includes: Use lines 19a through 19i only for assets asset account were placed in service. Once Any municipal wastewater treatment placed in service during the tax year made, the election is irrevocable and applies plant. beginning in 2010 and depreciated under to the tax year for which the election is Any telephone distribution plant and the General Depreciation System (GDS), made and all later tax years. comparable equipment used for 2-way except for automobiles and other listed exchange of voice and data For more information on depreciating property (which are reported in Part V). communications. property in a general asset account, see Column (a) Classification of Any section 1250 property that is a retail Pub Sort the property you acquired and placed in motor fuels outlet (whether or not food or service during the tax year beginning in other convenience items are sold there). Section B 2010 according to its classification (3-year Any qualified leasehold improvement Property acquired in a like-kind property, 5-year property, etc.) as shown in exchange or involuntary conversion. column (a) of lines 19a through 19i. The Any qualified restaurant property that is a Generally, you must depreciate the classifications for some property are shown building. carryover basis of property you acquire in a below. For property not shown, see Any qualified restaurant property that is like-kind exchange or involuntary conversion Determining the classification, later. section 1250 property and an improvement during the current tax year over the to a building. 3-year property includes: remaining recovery period of the property Initial clearing and grading land A race horse that is more than 2 years old exchanged or involuntarily converted. Use improvements for gas utility at the time it is placed in service before the same depreciation method and Certain electric transmission property January 1, convention that was used for the exchanged specified in section 168(e)(3)(E)(vii) placed or involuntarily converted Treat Note. Any race horse placed in service in service after April 11, 2005, the original any excess basis as newly placed in service after December 31, 2008, and before use of which begins with you after April 11, Figure depreciation separately for January 1, 2014, is treated as 3-year 2005, and is not under self-construction or the carryover basis and the excess basis, if property (regardless of the age of the race subject to a binding contract in existence any. horse). before April 12,

9 Any natural gas distribution line placed in Column (b) Month and year placed in service after April 11, 2005, the original use service. For lines 19h and 19i, enter the Recovery Period for Qualified of which begins with you after April 11, month and year you placed the property in Indian Reservation Property 2005, and is not under self-construction or service. If you converted property held for subject to a binding contract in existence personal use to use in a trade or business or Recovery before April 12, 2005, and placed in service for the production of income, treat the Property class period before January 1, property as being placed in service on the 3-year property... 2 yrs. Any qualified retail improvement property conversion date. 5-year property... 3 yrs. (as defined in section 168(e)(8)). 7-year property... 4 yrs. Column (c) Basis for depreciation 10-year property... 6 yrs. 20-year property includes: (business/investment use only). To find 15-year property... 9 yrs. Farm buildings (other than single purpose the basis for depreciation, multiply the cost 20-year property yrs. agricultural or horticultural structures). or other basis of the property by the Nonresidential real property yrs. Municipal sewers not classified as percentage of business/investment use. 25-year From that result, subtract any credits and Initial clearing and grading land deductions allocable to the The For example, figure depreciation on improvements for electric utility transmission following are examples of some credits and 5-year property acquired during the tax year and distribution plants. deductions that reduce the basis for that is qualified Indian reservation property depreciation. in the same manner as depreciation is 25-year property is water utility property, figured for 3-year property that is not which is: Section 179 expense deduction. qualified Indian reservation Report Property that is an integral part of the Deduction under section 179C for certain the depreciation on line 19b, entering 3 gathering, treatment, or commercial qualified refinery yrs. as the recovery period in column (d). distribution of water that, without regard to Deduction under section 179D for certain this classification, would be 20-year For more information, including the energy efficient commercial building definition of qualified property, see Pub. Municipal sewers. This classification does 946. Deduction for removal of barriers to the not apply to property placed in service under disabled and the elderly. Column (e) Convention. The a binding contract in effect at all times since applicable convention determines the June 9, Disabled access credit. portion of the tax year for which depreciation Enhanced oil recovery credit. is allowable during a year property is either Residential rental property is a building Credit for alternative fuel vehicle refueling placed in service or disposed of. There are in which 80% or more of the total rent is three types of conventions. To select the from dwelling units. Credit for employer-provided childcare correct convention, you must know the type Nonresidential real property is any real facilities and services. of property and when you placed the property that is neither residential rental property in service. Any special depreciation allowance property nor property with a class life of less included on line 14. Half-year convention. This convention than 27.5 years. Any basis adjustment for investment applies to all property reported on lines 19a 50-year property includes any credit See section 50(c). through 19g, unless the mid-quarter improvements necessary to construct or convention applies. It does not apply to improve a roadbed or right-of-way for residential rental property, nonresidential For additional credits and deductions that railroad track that qualifies as a railroad real property, and railroad gradings and affect the depreciable basis, see section grading or tunnel bore under section tunnel bores. It treats all property placed in 1016 and Pub (e)(4). service (or disposed of) during any tax year as placed in service (or disposed of) on the There is no separate line to report Column (d) Recovery period. midpoint of that tax year. Enter HY in 50-year Therefore, attach a Determine the recovery period from the column (e). statement showing the same information as following table. See Pub. 946 for more information on the recovery period for Mid-quarter convention. If the total required in columns (a) through (g). Include MACRS depreciable bases (before any special the deduction in the line 22 Total and write depreciation allowance) of MACRS property See attachment in the bottom margin of placed in service during the last 3 months of the form. Recovery Period for Most Property your tax year exceed 40% of the total Determining the classification. If your depreciable bases of MACRS property Recovery depreciable property is not listed above, placed in service during the entire tax year, Classification period determine the classification as follows. the mid-quarter, instead of the half-year, 3-year property... 3 yrs. convention generally applies. 1. Find the property s class life. See the 5-year property... 5 yrs. Table of Class Lives and Recovery Periods In determining whether the mid-quarter 7-year property... 7 yrs. in Pub convention applies, do not take into account 10-year property yrs. 2. Use the following table to find the the following. 15-year property yrs. classification in column (b) that corresponds Property that is being depreciated under a to the class life of the property in column (a). 20-year property yrs. method other than MACRS. 25-year property yrs. Any residential rental property, Residential rental property yrs. (a) (b) nonresidential real property, or railroad Class life (in years) Classification Nonresidential real property yrs. gradings and tunnel bores. (See Pub. 946) Railroad gradings and tunnel Property that is placed in service and 4 or less... 3-year property bores yrs. disposed of within the same tax year. More than 4 but less than 10 5-year property The mid-quarter convention treats all 10 or more but less than 16 7-year property property placed in service (or disposed of) 16 or more but less than year property Indian reservation For during any quarter as placed in service (or 20 or more but less than year property qualified Indian reservation property placed disposed of) on the midpoint of that quarter. 25 or more year property in service before January 1, 2012, the However, no depreciation is allowed under following shorter recovery periods apply. this convention for property that is placed in -9-

10 service and disposed of within the same tax property, qualified restaurant property, Mid-month (MM) convention year. Enter MQ in column (e). qualified retail improvement property, or Placed in service Mid-month convention. This any railroad grading or tunnel bore. The (or disposed of) Placed Disposed convention applies only to residential rental only applicable method is the straight line during the: in service of property (line 19h), nonresidential real method. 1st month property (line 19i), and railroad gradings and Column (g) Depreciation deduction. 2nd month tunnel bores. It treats all property placed in To figure the depreciation deduction, you 3rd month service (or disposed of) during any month as may use optional Tables A through E, which 4th month placed in service (or disposed of) on the begin on page 16. Multiply column (c) by the 5th month midpoint of that month. Enter MM in applicable rate from the appropriate table. 6th month column (e). See Pub. 946 for complete tables. If you 7th month Column (f) Method. Applicable disposed of the property during the current 8th month depreciation methods are prescribed for tax year, multiply the result by the applicable decimal amount from the tables in Step 3 9th month each classification of property as follows. later. Or, you may compute the deduction 10th month However, you can make an irrevocable yourself by completing the following steps. 11th month election to use the straight line method for Step 1. Determine the depreciation rate 12th month all property within a classification that is placed in service during the tax year. Enter as follows. 200 DB for 200% declining balance, 150 If you are using the 200% or 150% Short tax years. See Pub. 946 for rules DB for 150% declining balance, or S/L for declining balance method in column (f), on how to compute the depreciation straight line. divide the declining balance rate (use 2.00 deduction for property placed in service in a for 200 DB or 1.50 for 150 DB) by the Note. If you elected to accelerate pre-2006 short tax year. number of years in the recovery period in unused research and minimum tax credits in column (d). For example, for property Section C lieu of special depreciation allowance for depreciated using the 200 DB method over eligible property (as discussed on page 6), a recovery period of 5 years, divide 2.00 by you must depreciate the basis in the 5 for a rate of 40%. You must switch to the Lines 20a Through 20c property using the straight line method. straight line rate in the first year that the Complete lines 20a through 20c for assets, Enter S/L in this column for the applicable straight line rate exceeds the declining other than automobiles and other listed property classification. If you are balance rate. property, placed in service only during the depreciating other property in the same If you are using the straight line method, tax year beginning in 2010 and depreciated classification as the property for which this divide 1.00 by the remaining number of under the Alternative Depreciation System election was made and using a different years in the recovery period as of the (ADS). Report on line 17 MACRS method, enter Various in this column. beginning of the tax year (but not less than depreciation on assets placed in service in 3-, 5-, 7-, and 10-year one). For example, if there are 6 1 /2 years prior years. Generally, the applicable method is the remaining in the recovery period as of the Under ADS, use the applicable 200% declining balance method, switching beginning of the year, divide 1.00 by 6.5 for depreciation method, the applicable to the straight line method in the first tax a rate of 15.38%. recovery period, and the applicable year that the straight line rate exceeds the Step 2. Multiply the percentage rate convention to compute depreciation. declining balance rate. determined in Step 1 by the property s The following types of property must be Note. The straight line method is the only unrecovered basis (basis for depreciation depreciated under ADS. applicable method for trees and vines (as defined in column (c)) reduced by all Tangible property used predominantly bearing fruit or nuts. The 150% declining prior years depreciation. outside the United States. balance method is the only applicable Step 3. For property placed in service Tax-exempt use method for any qualified smart electric meter or disposed of during the current tax year, Tax-exempt bond financed or any qualified smart electric grid system multiply the result from Step 2 by the Imported property covered by an property placed in service after October 3, applicable decimal amount from the tables executive order of the President of the below (based on the convention shown in United States. For 3-, 5-, 7-, or 10-year property eligible column (e)). Property used predominantly in a farming for the 200% declining balance method, you business and placed in service during any can make an irrevocable election to use the Half-year (HY) convention tax year in which you made an election 150% declining balance method, switching under section 263A(d)(3) not to have the to the straight line method in the first tax Mid-quarter (MQ) convention uniform capitalization rules of section 263A year that the straight line rate exceeds the Placed in service apply. declining balance rate. The election applies (or disposed of) Placed Disposed Instead of depreciating property under to all property within the classification for during the: in service of GDS (line 19), you can make an irrevocable which it is made and that was placed in 1st quarter election for any classification of property for service during the tax year. You will not 2nd quarter any tax year to use ADS. For residential have an AMT adjustment for any property 3rd quarter rental and nonresidential real property, you included under this election. 4th quarter can make this election separately for each 15- and 20-year property (not including You make this election by qualified leasehold improvement, completing line 20 of Form qualified restaurant property, or qualified retail improvement property), and Column (a) Classification of property used in a farming business. The Use the following rules to determine the applicable method is the 150% declining classification of the property under ADS. balance method, switching to the straight Under ADS, the depreciation deduction line method in the first tax year that the for most property is based on the property s straight line rate exceeds the declining class life. See section 168(g)(3) for special balance rate. rules for determining the class life for certain Water utility property, residential rental See Pub. 946 for information on property, nonresidential real property, recovery periods for ADS and the Table of qualified leasehold improvement Class Lives and Recovery Periods. -10-

11 Use line 20a for all property depreciated under ADS, except property that does not have a class life, residential rental and nonresidential real property, water utility property, and railroad gradings and tunnel bores. Use line 20b for property that does not have a class life. Use line 20c for residential rental and nonresidential real Water utility property and railroad gradings and tunnel bores. These assets are 50-year property under ADS. There is Part IV. Summary Line 22 A partnership (other than an electing large partnership) or S corporation does not Lines 26 and 27 include any section 179 expense deduction (line 12) on this line. Instead, any section 179 expense deduction is passed through separately to the partners and shareholders on the appropriate line of their Schedules K-1. passenger vehicles and trucks and vans. Enter on line 25 your total special depreciation allowance for all qualified listed Use line 26 to figure depreciation for property used more than 50% in a qualified business use. Use line 27 to figure the depreciation for property used 50% or less in a qualified business use. Also see Limits for passenger automobiles on page 12. no separate line to report 50-year Line 23 If you acquired the property through Therefore, attach a statement showing the If you are subject to the uniform a trade-in, special rules apply for same information required in columns (a) capitalization rules of section 263A, enter determining the basis, recovery through (g). Include the deduction in the line the increase in basis from costs you must period, depreciation method, and 22 Total and write See attachment in the capitalize. For a detailed discussion of who convention. For more details, see Property bottom margin of the form. is subject to these rules, which costs must acquired in a like-kind exchange or be capitalized, and allocation of costs involuntary conversion on page 8. Also, see Column (b) Month and year placed in among activities, see Regulations section Regulations section 1.168(i)-6(d)(3). service. For 40-year property, enter the month and year placed in service or 1.263A-1. Qualified business use. To determine converted to use in a trade or business or whether to use line 26 or line 27 to report for the production of income. Part V. Listed Property your listed property, you must first determine If you claim the standard mileage rate, the percentage of qualified business use for Column (c) Basis for depreciation actual vehicle expenses (including each Generally, a qualified (business/investment use only). See the depreciation), or depreciation on other listed business use is any use in your trade or instructions for line 19, column (c). property, you must provide the information business. However, it does not include any Column (d) Recovery period. On line requested in Part V, regardless of the tax of the following. 20a, enter the property s class life. year the property was placed in service. Investment use. However, if you file Form 2106 or 2106-EZ, Leasing the property to a 5% owner or Column (e) Convention. Under ADS, report this information on that form and not related person. the applicable conventions are the same as in Part V. Also, if you file Schedule C (Form The use of the property as compensation those used under GDS. See the instructions 1040) or Schedule C-EZ (Form 1040) and for services performed by a 5% owner or for line 19, column (e). are claiming the standard mileage rate or related person. actual vehicle expenses (except The use of the property as compensation Column (g) Depreciation deduction. depreciation), and you are not required to for services performed by any person (who Figure the depreciation deduction in the file Form 4562 for any other reason, report is not a 5% owner or related person), unless same manner as under GDS, except use vehicle information in Part IV of Schedule C an amount is included in that person s the straight line method over the ADS or in Part III of Schedule C-EZ and not on income for the use of the property and, if recovery period and use the applicable Form required, income tax was withheld on that convention. amount. MACRS recapture. If you later dispose of Section A Excluding these uses above from the property you depreciated using MACRS, numerator, determine your percentage of any gain on the disposition is generally The section 179 expense deduction qualified business use similar to the method recaptured (included in income) as ordinary! should be computed before used to figure the business/investment use income up to the amount of the depreciation calculating any special depreciation percentage in column (c). Your percentage previously allowed or allowable for the allowance and/or regular depreciation of qualified business use may be smaller Depreciation, for this purpose, deduction. See the instructions for line 26, than the business/investment use includes any of the following deductions column (i). percentage. taken during the 2010 tax year. Listed property used 50% or less in a For more information, including the Any section 179 expense deduction qualified business use (as defined in the definition of a 5% owner and related person claimed on the property, instructions for lines 26 and 27 below) does and exceptions, see Pub Any special depreciation allowance not qualify for the section 179 expense available for the property (unless you deduction or special depreciation allowance. Listed property recapture. If you used elected not to claim it), listed property more than 50% in a qualified Line 25 business use in the year you placed the Any deduction under section 179B for If you placed in service certain qualified property in service, and used it 50% or less capital costs incurred in complying with listed property during the tax year, you may in a later year, you may have to include as Environmental Protection Agency sulfur be able to deduct an additional special income part of the depreciation deducted in regulations, depreciation allowance. This property prior years. Use Form 4797, Sales of Any deduction under section 179C for includes certain qualified property placed in Business Property, to figure the recapture certain qualified refinery property, and service before January 1, 2013, certain amount. Any deduction under section 179D for specified GO Zone extension property, or Column (a) Type of List on a certain energy efficient commercial building certain qualified disaster assistance property property-by-property basis all your listed placed in service during the tax year. See property in the following order. There is no recapture for residential the instructions for line 14 for the definition 1. Automobiles and other vehicles. rental and nonresidential real property, of qualified property and how to figure the 2. Other listed property (computers and unless that property is qualified property for deduction. This special depreciation peripheral equipment, etc.). which you claimed a special depreciation allowance is included in the overall limit on allowance (discussed earlier). For more depreciation and section 179 expense In column (a), list the make and model of information on depreciation recapture, see deduction for passenger automobiles. See automobiles, and give a general description Pub the tables on page 13 for limitations on of other listed -11-!

12 If you have more than five vehicles used From that result, subtract any section expense deduction, for passenger 100% for business/investment purposes, expense deduction, any special depreciation automobiles is limited. For any passenger you may group them by tax year. Otherwise, allowance, any credit for employer-provided automobile (including an electric passenger list each vehicle separately. childcare facilities and services, and half of automobile) you list on line 26 or line 27, the any investment credit taken before 1986 total of columns (h) and (i) on line 26 or 27 Column (b) Date placed in service. (unless you claimed the reduced credit). For Enter the date the property was placed in and column (h) on line 25 for that service. If property held for personal use is automobiles and other listed property placed automobile cannot exceed the applicable converted to business/investment use, treat in service after 1985 (i.e., transition limit shown in Table 1, 2, 3, or 4. If the the property as placed in service on the date property), reduce the depreciable basis by business/investment use percentage in of conversion. the entire investment credit. column (c) for the automobile is less than 100%, you must reduce the applicable limit Column (c) Business/investment use Column (f) Recovery period. Enter the to an amount equal to the limit multiplied by percentage. Enter the percentage of recovery period. For property placed in that percentage. For example, for an business/investment use. For automobiles service after 1986 and used more than 50% automobile (other than a truck or van) and other vehicles, determine this in a qualified business use, use the table in placed in service in 2010 (for which you percentage by dividing the number of miles the instructions for line 19, column (d). For elect not to claim any special depreciation the vehicle is driven for trade or business property placed in service after 1986 and allowance) that is used 60% for business/ purposes or for the production of income used 50% or less in a qualified business investment, the limit is $1,836 ($3,060 x during the year (not to include any use, depreciate the property using the 60%). commuting mileage) by the total number of straight line method over its ADS recovery miles the vehicle is driven for all purposes. period. The ADS recovery period is 5 years Treat vehicles used by employees as being for automobiles and computers. For purposes of the limits for passenger used 100% for business/investment automobiles, the following apply. purposes if the value of personal use is Column (g) Method/convention. Enter Passenger automobiles are 4-wheeled included in the employees gross income, or the method and convention used to figure vehicles manufactured primarily for use on the employees reimburse the employer for your depreciation deduction. See the public roads that are rated at 6,000 pounds the personal use. instructions for line 19, columns (e) and (f). unloaded gross vehicle weight or less (for a Write 200 DB, 150 DB, or S/L, for the Employers who report the amount of truck or van, gross vehicle weight is depreciation method, and HY, MM, or personal use of the vehicle in the substituted for unloaded gross vehicle MQ, for half-year, mid-month, or employee s gross income, and withhold the weight). appropriate taxes, should enter 100% for mid-quarter conventions, respectively. For Electric passenger automobiles are the percentage of business/investment use. property placed in service before 1987, write vehicles produced by an original equipment For more information, see Pub PRE if you used the prescribed manufacturer and designed to run primarily percentages under ACRS. If you elected an on electricity, placed in service after August For other listed property (such as alternate percentage or if you are required computers or video equipment), allocate the 5, 1997, and before January 1, to depreciate the property using the straight use based on the most appropriate unit of line method, enter S/L. time the property is actually used (rather Exception. The following vehicles are than merely being available for use). Column (h) Depreciation deduction. not considered passenger automobiles. See Limits for passenger automobiles, later, An ambulance, hearse, or combination If during the tax year you convert before entering an amount in column (h). ambulance-hearse used in your trade or property used solely for personal purposes to business/investment use (or vice versa), business. For property used more than 50% in a figure the percentage of business/ qualified business use (line 26) and placed A vehicle used in your trade or business investment use only for the number of in service after 1986, figure column (h) by of transporting persons or property for months you use the property in your following the instructions for line 19, column compensation or hire. business or for the production of income. (g). If placed in service before 1987, multiply Any truck or van placed in service after Multiply that percentage by the number of column (e) by the applicable percentage July 6, 2003, that is a qualified nonpersonal months you use the property in your given in Pub. 534 for ACRS If the use vehicle. A truck or van is a qualified business or for the production of income, recovery period for an automobile ended nonpersonal use vehicle only if it has been and divide the result by 12. before your tax year beginning in 2010, specially modified with the result that it is not Column (d) Cost or other basis. Enter enter your unrecovered basis, if any, in likely to be used more than a de minimis the property s actual cost (including sales column (h). amount for personal purposes. For example, tax) or other basis (unadjusted for prior a van that has only a front bench for seating, years depreciation). If you traded in old For property used 50% or less in a in which permanent shelving has been property, see Property acquired in a qualified business use (line 27) and placed installed, that constantly carries like-kind exchange or involuntary conversion in service after 1986, figure column (h) by merchandise or equipment, and that has on page 8. dividing the amount in column (e) by the been specially painted with advertising or amount in column (f). Use the same the company s name, is a vehicle not likely For a vehicle, reduce your basis by any conventions as discussed in the instructions to be used more than a de minimis amount qualified electric vehicle credit you claimed for line 19, column (e). The amount in for personal purposes. for property placed in service before column (h) cannot exceed the property s January 1, 2007, or by any alternative motor unrecovered basis. If the recovery period for vehicle credit allowed. Exception for leasehold an automobile ended before your tax year The business use requirement and the limits If you converted the property from beginning in 2010, enter your unrecovered for passenger automobiles generally do not personal use to business/investment use, basis, if any, in column (h). apply to passenger automobiles leased or your basis for depreciation is the smaller of held by anyone regularly engaged in the the property s adjusted basis or its fair For property placed in service before business of leasing passenger automobiles. market value on the date of conversion that was disposed of during the year, enter zero. Column (e) Basis for depreciation For a detailed discussion on passenger (business/investment use only). Multiply Limits for passenger automobiles. The automobiles, including leased automobiles, column (d) by the percentage in column (c). depreciation deduction, including section see Pub

13 Table 1 Limits for Passenger Table 3 Limits for Passenger You cannot elect to expense more than Automobiles Placed in Service Before Automobiles Placed in Service After 2003 $25,000 of the cost of any sport utility 2004 (excluding electric passenger (excluding trucks and vans placed in service vehicle (SUV) and certain other vehicles automobiles placed in service after August after 2002 and electric passenger placed in service during the tax year. This 5, 1997) automobiles placed in service before rule applies to any 4-wheeled vehicle January 1, 2007) primarily designed or used to carry THEN the passengers over public streets, roads, or limit on your AND the highways, that is rated at more than 6,000 IF you placed your depreciation THEN the number of limit on your pounds gross vehicle weight and not more automobile in service: and section 179 IF you placed tax years in depreciation than 14,000 pounds gross vehicle weight. expense your automobile which this and section However, the $25,000 limit does not apply to deduction is: in service: automobile 179 expense any vehicle: has been in June 19 Dec. 31, 1984 $6,000 deduction is: service is: Designed to seat more than nine persons behind the driver s seat, Jan. 1 Apr. 2, 1985 $6,200 Jan. 1, or more $1,675 Equipped with a cargo area (either open Apr. 3, 1985 Dec. 31, 1986 $4,800 Dec. 31, 2005 or enclosed by a cap) of at least six feet in Jan. 1, 2006 interior length that is not readily accessible Jan. 1, 1987 Dec. 31, 1990 $1,475 4 or more $1,775 Dec. 31, 2007 directly from the passenger compartment, or Jan. 1, 1991 Dec. 31, 1992 $1,575 That has an integral enclosure fully Jan. 1 Dec. 31, 3 $2,850 enclosing the driver compartment and load Jan. 1, 1993 Dec. 31, 1994 $1, $1,775 carrying device, does not have seating Jan. 1, 1995 Dec. 31, 2003 $1,775 rearward of the driver s seat, and has no Jan. 1 Dec. 31, 2 $4,800 body section protruding more than 30 inches $2,850 ahead of the leading edge of the windshield. Table 2 Limits for Electric Passenger Recapture of section 179 expense Automobiles Placed in Service After Jan. 1 Dec. 31, 1 $3,060* deduction. If you used listed property August 5, 1997, and Before January 1, $4,900 more than 50% in a qualified business use 2007 in the year you placed the property in * If you take the special depreciation allowance for qualified passenger automobiles placed in service in 2010, the limit is service and used it 50% or less in a later AND the $11,060. number of THEN the year, you may have to recapture in the later tax years in limit on your year part of the section 179 expense IF you placed which this depreciation deduction. Use Form 4797 to figure the your electric automobile and section Table 4 Limits for Trucks and Vans recapture amount. automobile in has been in 179 expense Placed in Service After 2002 service: service is: deduction is: Section B Aug. 6, 1997 Dec. 31, 1998 Jan. 1, 1999 Dec. 31, 2002 Jan. 1 Dec. 31, 2003 Jan. 1, 2004 Dec. 31, 2005 Jan. 1 Dec. 31, 2006 AND the THEN the number of Except as noted below, you must complete 4 or more $5,425 limit on your IF you placed tax years in lines 30 through 36 for each vehicle depreciation your truck or van which this identified in Section A. Employees must and section 4 or more $5,325 in service: truck or van 179 expense provide their employers with the information has been in deduction is: requested on lines 30 through 36 for each service is: automobile or vehicle provided for their use. 4 or more $5,225 Jan. 1 Dec. 31, 4 or more $1,975 Exception. Employers are not required to or more $5,125 complete lines 30 through 36 for vehicles Jan. 1, 2004 used by employees who are not more than 4 or more $1,875 Dec. 31, % owners or related persons and for which 4 or more $5,225 the question on line 37, 38, 39, 40, or 41 is Jan. 1 Dec. 31, 3 $3,050 answered Yes $1,875 Section C Jan. 1 Dec. 31, 2 $4,900 Employers providing vehicles to their $2,950 employees satisfy the employer s substantiation requirements under section Jan. 1 Dec. 31, 1 $3,160* 274(d) by maintaining a written policy $5,100 statement that: Prohibits personal use including * If you take the special depreciation allowance for qualified commuting or trucks and vans placed in service in 2010, the limit is $11,160. Prohibits personal use except for commuting. Note. The limitation for automobiles (including trucks and vans) placed in service after December 31, 2010, will be published in the Internal Revenue Bulletin. These amounts were not available at the time these instructions were printed. Column (i) Elected section 179 cost. Enter the amount you elect to expense for section 179 property used more than 50% in a qualified business use (subject to the limits for passenger automobiles). Refer to the instructions for Part I to determine if the property qualifies under section An employee does not need to keep a separate set of records for any vehicle that satisfies these written policy statement rules. For both written policy statements, there must be evidence that would enable the IRS to determine whether use of the vehicle meets the conditions stated below. Line 37 A policy statement that prohibits personal use (including commuting) must meet all of the following conditions.

14 Part VI. Amortization The employer owns or leases the vehicle expense and is subject to the investment and provides it to one or more employees interest limitations. Use Form 4952, for use in the employer s trade or business. Each year you can deduct part of certain Investment Interest Expense Deduction, to capital costs over a fixed period. When the vehicle is not used in the compute the allowable deduction. employer s trade or business, it is kept on If you amortize property, the part you For taxable bonds acquired after 1987, the employer s business premises, unless it! amortize does not qualify for the you can elect to amortize the bond premium is temporarily located elsewhere (e.g., for section 179 expense deduction or for over the life of the bond. See section 171 maintenance or because of a mechanical depreciation. and Regulations section for more failure). Attach any information the Code and information. Individuals, also see Pub. 550, No employee using the vehicle lives at the regulations may require to make a valid Investment Income and Expenses. employer s business premises. election. See the applicable Code section, Research and experimental No employee may use the vehicle for regulations, and Pub. 535 for more expenditures (section 174). You can elect personal purposes, other than de minimis information. to either amortize your research and personal use (e.g., a stop for lunch between experimental costs, deduct them as current two business deliveries). Line 42 business expenses, or write them off over a Except for de minimis use, the employer Complete line 42 only for those costs you 10-year period. If you elect to amortize reasonably believes that no employee uses amortize for which the amortization period these costs, deduct them in equal amounts the vehicle for any personal purpose. begins during your tax year beginning in over 60 months or more. For more information, see Pub Line 38 Column (a) Description of costs. The cost of acquiring a lease (section A policy statement that prohibits personal Describe the costs you are amortizing. You 178). Amortize these costs over the term of use (except for commuting) is not available can amortize the following. the lease. For more information, see Pub. if the commuting employee is an officer, Geological and geophysical 535. director, or 1% or more owner. This policy expenditures (section 167(h)). You must Qualified forestation and reforestation must meet all of the following conditions. amortize geological and geophysical costs (section 194). You can elect to The employer owns or leases the vehicle expenses paid or incurred in connection with deduct a limited amount of qualifying and provides it to one or more employees the exploration or development of oil and reforestation costs paid or incurred during for use in the employer s trade or business, gas within the United States ratably over a the tax year for each qualified timber and it is used in the employer s trade or 24-month period. For major integrated oil You can elect to amortize the business. company (as defined in section 167(h)(5)), qualifying costs that are not deducted the costs paid or incurred after May 17, For bona fide noncompensatory business currently over an 84-month period. There is 2006, and before December 20, 2007, must reasons, the employer requires the no limit on the amount of your amortization be amortized ratably over a 5-year period (a employee to commute to and/or from work deduction for reforestation costs paid or 7-year period for costs paid or incurred after in the vehicle. incurred during the tax year. December 19, 2007), beginning on the The employer establishes a written policy If you are otherwise required to file Form mid-point of the tax year in which the under which the employee may not use the T (Timber), Forest Activities Schedule, you expenses were paid or incurred. See section vehicle for personal purposes, other than can make the election to amortize qualifying 167(h). commuting or de minimis personal use (e.g., reforestation costs by completing Part IV of Pollution control facilities (section a stop for a personal errand between a the form. See the instructions for Form T 169). You can elect to amortize the cost of business delivery and the employee s (Timber) for more information. a certified pollution control facility over a home). See Pub. 535 for more information on 60-month period (84 months for certain Except for de minimis use, the employer amortizing reforestation costs. Partnerships atmospheric pollution control facilities reasonably believes that the employee does and S corporations, also see the instructions placed in service after April 11, 2005). See not use the vehicle for any personal purpose for line 44. section 169 and the related regulations for other than commuting. details and information required in making Optional write-off of certain tax The employer accounts for the commuting the election. See Pub. 535 for more preferences over the period specified in use by including an appropriate amount in information. section 59(e). You can elect to amortize the employee s gross income. certain tax preference items over an optional You can deduct a special period. If you make this election, there is no depreciation allowance on a certified Line 40! AMT adjustment for these expenditures. The pollution control facility that is applicable expenditures and the optional An employer that provides more than five qualified However, you must recovery periods are as follows: vehicles to its employees who are not 5% reduce the amount on which you figure your Circulation expenditures (section 173) owners or related persons need not amortization deduction by any special 3 years, complete Section B for such vehicles. depreciation allowance allowed or allowable, Intangible drilling and development costs Instead, the employer must obtain the whichever is greater. (section 263(c)) 60 months, and information from its employees and retain Also, a corporation must reduce its Research and experimental expenditures the information received. amortizable basis of a pollution control (section 174(a)), mining exploration and facility by 20% before figuring the development costs (sections 616(a) and Line 41 amortization deduction. 617(a)) 10 years. An automobile meets the requirements for Certain bond premiums (section 171). For information on making the election, qualified demonstration use if the employer For individuals reporting amortization of see Regulations section Also see maintains a written policy statement that: bond premium for bonds acquired before Pub Prohibits its use by individuals other than October 23, 1986, do not report the Certain section 197 intangibles. The full-time automobile salespersons, deduction here. See the instructions for following costs must be amortized over 15 Prohibits its use for personal vacation Schedule A (Form 1040), line 28. years (180 months) starting with the later of trips, For taxpayers (other than corporations) (a) the month the intangibles were acquired Prohibits storage of personal possessions claiming a deduction for amortization of or (b) the month the trade or business or in the automobile, and bond premium for bonds acquired after activity engaged in for the production of Limits the total mileage outside the October 22, 1986, but before January 1, income begins: salesperson s normal working hours. 1988, the deduction is treated as interest Goodwill; -14-

15 Going concern value; statement required by Regulations sections Line 43 Workforce in place; (b) and (c). Any costs not Business books and records, operating deducted currently can be amortized ratably If you are reporting the amortization of costs systems, or any other information base; over a 180-month period, beginning with the that began before your 2010 tax year and A patent, copyright, formula, process, month you begin business. you are not required to file Form 4562 for design, pattern, know-how, format, or similar any other reason, do not file Form item; Note. You can apply the provisions of Report the amortization directly on the A customer-based intangible (e.g., Temporary Regulations sections T Other Deductions or Other Expenses line composition of market or market share); and T to all expenses paid or of your return. A supplier-based intangible; incurred after October 22, 2004, provided A license, permit, or other right granted by the period of limitations on assessment has Line 44 a governmental unit; not expired for the year of the election. Report the total amortization, including the A covenant not to compete entered into in Otherwise, the provisions under Regulations allowable portion of forestation or connection with the acquisition of a sections (b) and (c) will reforestation amortization, on the applicable business; and apply. Other Deductions or Other Expenses line A franchise, trademark, or trade name For business start-up and organizational of your return. For more details, including (including renewals). costs paid or incurred before October 23, limitations that apply, see Pub A longer period may apply to section , you can elect an amortization period Partnerships (other than electing large intangibles leased under a lease agreement of 60 months or more. partnerships) and S corporations, report the entered into after March 12, 2004, to a amortizable basis of any forestation or tax-exempt organization, governmental unit, Attach any statements required by the reforestation expenses for which or foreign person or entity (other than a appropriate section and related regulations amortization is elected and the year in which partnership). See section 197(f)(10). to Form 4562 by the due date, including the amortization begins as a separately extensions, of your return for the year in stated item on Schedules K and K-1 (Form A section 197 intangible is treated as which the active trade or business begins. If 1065 or 1120S). See the instructions for! depreciable property used in your you have both start-up and organizational Schedule K (Form 1065 or 1120S) for more trade or business. When you dispose costs, attach a separate statement for each details on how to report. of a section 197 intangible, any gain on the type of cost. If you timely filed your return disposition, up to the amount of allowable without making the election, you can still Paperwork Reduction Act Notice. We amortization, is recaptured as ordinary make the election on an amended return ask for the information on this form to carry income. If multiple section 197 intangibles filed within 6 months of the due date, out the Internal Revenue laws of the United are disposed of in a single transaction or a excluding extensions, of the return. Write States. You are required to give us the series of related transactions, calculate the Filed pursuant to section on information. We need it to ensure that you recapture as if all of the section 197 the amended return. See Pub. 535 for more are complying with these laws and to allow intangibles were a single asset. This rule details. us to figure and collect the right amount of does not apply to section 197 intangibles Creative property costs. These are tax. disposed of for which the fair market value costs paid or incurred to acquire and exceeds the adjusted basis. develop screenplays, scripts, story outlines, You are not required to provide the For more details on section 197 motion picture production rights to books information requested on a form that is intangibles, see Pub and plays, and other similar properties for subject to the Paperwork Reduction Act Start-up and organizational costs. purposes of potential future film unless the form displays a valid OMB control You can elect to amortize the following costs development, production, and exploitation. number. Books or records relating to a form for setting up your business. You may be able to amortize creative or its instructions must be retained as long Business start-up costs (section 195). property costs for properties not set for as their contents may become material in Organizational costs for a corporation production within 3 years of the first the administration of any Internal Revenue (section 248). capitalized transaction. These costs are law. Generally, tax returns and return Organizational costs for a partnership amortized ratably over a 15-year period information are confidential, as required by (section 709). under the rules of Rev. Proc , section I.R.B For the special rule for tax years The time needed to complete and file this beginning in 2010 for start-up costs paid or Column (b) Date amortization begins. form will vary depending on individual incurred in tax years beginning after Enter the date the amortization period circumstances. The estimated burden for December 31, 2009, see section 195(b)(3) begins under the applicable Code section. individual taxpayers filing this form is and Pub approved under OMB control number Column (c) Amortizable amount. For business start-up and organizational and is included in the estimates Enter the total amount you are amortizing. costs paid or incurred after September 8, shown in the instructions for their individual See the applicable Code section for limits on 2008, you can deduct a limited amount of income tax return. The estimated burden for the amortizable amount. start-up or organizational costs for the year all other taxpayers who file this form is that your business begins. You are not Column (d) Code section. Enter the shown below. required to attach a statement to make this Code section under which you amortize the election. Once made, the election is costs. For examples, see the Code sections Recordkeeping hr., 44 min. irrevocable. Any cost not deducted currently referenced in the instructions for line 42, Learning about the law or must be amortized ratably over a 180-month column (a), earlier. the form... 4 hr., 16 min. period. The amortization period starts with Preparing and sending the Column (f) Amortization for this year. the month you begin business operations. form to the IRS... 4 hr., 55 min. Compute the amortization deduction by: See Temporary Regulations sections 1. Dividing the amount in column (c) by T and T. If you have comments concerning the the number of months over which the costs accuracy of these time estimates or For business start-up and organizational are to be amortized and multiplying the suggestions for making this form simpler, we costs paid or incurred after October 22, result by the number of months in the would be happy to hear from you. See the 2004, and before September 9, 2008, you amortization period included in your tax year instructions for the tax return with which this can elect to deduct a limited amount of beginning in 2010 or form is filed. start-up and organizational costs. If the 2. Multiplying the amount in column (c) election is made, you must attach any by the percentage in column (e). -15-

16 Table A General Depreciation System Method: 200% declining balance switching to straight line Convention: Half-year If the recovery period is: Year 3 years 5 years 7 years 10 years % 20.00% 14.29% 10.00% % 32.00% 24.49% 18.00% % 19.20% 17.49% 14.40% % 11.52% 12.49% 11.52% % 8.93% 9.22% % 8.92% 7.37% % 6.55% % 6.55% % % % Table B General and Alternative Depreciation System Method: 150% declining balance switching to straight line Convention: Half-year If the recovery period is: Year 5 years 7 years 10 years 12 years 15 years 20 years % 10.71% 7.50% 6.25% 5.00% 3.750% % 19.13% 13.88% 11.72% 9.50% 7.219% % 15.03% 11.79% 10.25% 8.55% 6.677% % 12.25% 10.02% 8.97% 7.70% 6.177% % 12.25% 8.74% 7.85% 6.93% 5.713% % 12.25% 12.25% 8.74% 8.74% 7.33% 7.33% 6.23% 5.90% 5.285% 4.888% % 8.74% 7.33% 5.90% 4.522% % 7.33% 5.91% 4.462% % 7.33% 5.90% 4.461% % 7.32% 5.91% 4.462% % 5.90% 4.461% % 5.91% 4.462% % 4.461% % 4.462% % 4.461% % % % % % -16-

17 Table C General Depreciation System Method: Straight line Convention: Mid-month Recovery period: 27.5 years The month in the 1st recovery year the property is placed in service: Year % 3.182% 2.879% 2.576% 2.273% 1.970% 1.667% 1.364% 1.061% 0.758% 0.455% 0.152% % 3.636% 3.636% 3.636% 3.636% 3.636% 3.636% 3.636% 3.636% 3.636% 3.636% 3.636% 10,12,14,16,18, 20, 22, 24, % 3.637% 3.637% 3.637% 3.637% 3.637% 3.636% 3.636% 3.636% 3.636% 3.636% 3.636% 11,13,15,17,19, 21, 23, % 3.636% 3.636% 3.636% 3.636% 3.636% 3.637% 3.637% 3.637% 3.637% 3.637% 3.637% Table D General Depreciation System Method: Straight line Convention: Mid-month Recovery period: 31.5 years The month in the 1st recovery year the property is placed in service: Year ,15,17,19, 21, 23, 25, 27, % 3.175% 3.174% 3.175% 3.174% 3.175% 3.174% 3.175% 3.174% 3.175% 3.174% 3.175% 14,16,18, 20, 22, 24, 26, 28, % 3.174% 3.175% 3.174% 3.175% 3.174% 3.175% 3.174% 3.175% 3.174% 3.175% 3.174% Table E General Depreciation System Method: Straight line Convention: Mid-month Recovery period: 39 years The month in the 1st recovery year the property is placed in service: Year % 2.247% 2.033% 1.819% 1.605% 1.391% 1.177% 0.963% 0.749% 0.535% 0.321% 0.107% % 2.564% 2.564% 2.564% 2.564% 2.564% 2.564% 2.564% 2.564% 2.564% 2.564% 2.564% % 0.321% 0.535% 0.749% 0.963% 1.177% 1.391% 1.605% 1.819% 2.033% 2.247% 2.461% -17-

18 Description of Property Date Placed in Service Depreciation Worksheet (Keep for your records.) Cost or Other Basis Business/ Investment Use % Section 179 Deduction and Special Allowance Depreciation Prior Years Basis for Depreciation Method/ Convention Recovery Period Rate or Table % Depreciation Deduction -18-

19 Index A D Depreciation R Alternative Depreciation Definitions... 1 deduction Recapture: System: Amortization... 2 Determining the Listed property... 11, 13 Basis for Commuting... 2 classification... 9 MACRS depreciation depreciation Depreciation... 1 Placed in service date... 9 Section 179 expense Classification of Listed property... 2 Recovery period... 9 deduction... 3, 13 property Listed property - Special depreciation Conventions Exceptions... 2 I allowance... 7 Depreciation Section 179 property... 1 Involuntary conversion... 8 Recordkeeping... 2 deduction Depreciation: Placed in service Accelerated Cost Recovery L S date System (ACRS)... 7 Recovery period Like-kind exchange... 8 Section 179 expense Assets placed in service in Listed property: deduction... 2 Alternative minimum tax... 2 prior year... 8 Basis for Carryover of disallowed Amortization General asset depreciation deduction... 4 Amortizable amount accounts... 8 Convention Election... 2 Amortization Income forecast Cost or other basis Limitations: deduction method... 7 Depreciation Maximum Amortization of costs from Intangible property... 7 deduction deduction... 3 prior year Listed property Information on vehicle Sport utility vehicle Amortization of costs in Modified Accelerated Cost use (SUV) current year Recovery System Method Taxable income... 4 Applicable code (MACRS)... 7 Passenger automobile Threshold cost of section Alternative Depreciation limits property... 3 Certain bond System Definitions Listed property premiums General Depreciation Exception Recapture... 3, 13 Cost of acquiring a System... 8 Leasehold property Revocation... 3 lease Involuntary conversion... 8 exception Special depreciation Creative property Like-kind exchange... 8 Tables allowance... 4 costs Other... 7 Percentage of business or Election out... 7 Date amortization investment use Figuring the begins Depreciation methods: Placed in service allowance... 6 Description of costs 14 Declining balance date Listed property Forestation and Straight line Qualified business Qualified property... 5 reforestation costs Depreciation tables use Recapture... 7 Geological and geophysical Depreciation expenditures Questions for employers on Special rules for qualified worksheet Optional section 59(e) vehicle use section 179 real write-off Recapture of section 179 property... 2 Pollution control E expense facilities Election out: deduction U Research and experimental Involuntary Recovery period Uniform capitalization expenditures conversion... 8 Section 179 expense rules Section 197 Like-kind exchange... 8 deduction Unit-of-production intangibles Special depreciation Special depreciation method... 7 Start-up and organizational allowance... 7 allowance costs Type of property W G Q Where to find additional C General Depreciation System: information... 1 Conventions: Basis for depreciation... 9 Qualified section 179 real Classification of property, election for Who must file... 1 Half-year... 9 Mid-month 10 property... 8 certain... 2 Mid-quarter... 9 Conventions... 9 Qualified section 179 real property, special rules