|Pub. 534, Depreciating Property Placed in Service Before 1987
||2008 Tax Year
Topics - This chapter discusses:
Useful Items - You may want to see:
Travel, Entertainment, and Gift Expenses
Business Use of Your Home (Including Use by Day-Care Providers)
Business Use of a Car
How To Depreciate Property
Form (and Instructions)
Unreimbursed Employee Business Expenses
Employee Business Expenses
Recapture of Investment Credit
Depreciation and Amortization
This chapter discusses some special rules and recordkeeping requirements for listed property. For complete coverage of the
rules, including the
rules concerning passenger automobiles, see Publication 946.
If listed property is not used predominantly (more than 50%) in a qualified business use as discussed inPredominant Use Test, later, the
section 179 deduction is not allowable and the property must be depreciated using the straight line method.
Listed property is any of the following:
Any passenger automobile (defined later),
Any other property used for transportation,
Any property of a type generally used for entertainment, recreation, or amusement (including photographic, phonographic, communication,
video recording equipment),
Any computer and related peripheral equipment, defined later, unless it is used only at a regular business establishment and
owned or leased by the person operating the establishment. A regular business establishment includes a portion of a dwelling
unit (defined later), if,
and only if, that portion is used both regularly and exclusively for business as discussed in Publication 587.
Any cellular telephone (or similar telecommunication equipment) placed in service or leased in a tax year beginning after
Passenger Automobile Defined
A passenger automobile is any four-wheeled vehicle made primarily for use on public streets, roads, and highways and rated
at 6,000 pounds or less
of unloaded gross vehicle weight (at 6,000 pounds or less of gross vehicle weight for trucks and vans). It includes any part,
component, or other item
physically attached to the automobile or usually included in the purchase price of an automobile.
A passenger automobile does not include:
An ambulance, hearse, or combination ambulance-hearse used directly in a trade or business, and
A vehicle used directly in the trade or business of transporting persons or property for compensation or hire.
A dwelling unit is a house or apartment used to provide living accommodations in a building or structure. It does not include
a unit in a hotel,
motel, inn, or other establishment where more than half the units are used on a transient basis.
Other Property Used for Transportation
Other property used for transportation includes trucks, buses, boats, airplanes, motorcycles, and any other vehicles for transporting
Listed property does not include:
Any vehicle which, by reason of its design, is not likely to be used more than a minimal amount for personal purposes, such
marked police and fire vehicles, ambulances, or hearses used for those purposes,
Any vehicle that is designed to carry cargo and that has a loaded gross vehicle weight over 14,000 pounds, bucket trucks (cherry
cement mixers, combines, cranes and derricks, delivery trucks with seating only for the driver (or only for the driver plus
a folding jump seat), dump
trucks (including garbage trucks), flatbed trucks, forklifts, qualified moving vans, qualified specialized utility repair
trucks, and refrigerated
Any passenger bus used for that purpose with a capacity of at least 20 passengers and school buses,
Any tractor or other special purpose farm vehicle, and unmarked vehicles used by law enforcement officers if the use is officially
Any vehicle, such as a taxicab, if substantially all its use is in the trade or business of providing services to transport
property for compensation or hire by unrelated persons.
Computers and Related Peripheral Equipment
A computer is a programmable electronically activated device that:
Is capable of accepting information, applying prescribed processes to the information, and supplying the results of those
processes with or
without human intervention, and
Consists of a central processing unit with extensive storage, logic, arithmetic, and control capabilities.
Related peripheral equipment is any auxiliary machine which is designed to be controlled by the central processing unit of
Computer or peripheral equipment does not include:
Any equipment which is an integral part of property which is not a computer,
Typewriters, calculators, adding and accounting machines, copiers, duplicating equipment, and similar equipment, and
Equipment of a kind, used primarily for the user's amusement or entertainment, such as video games.
If “listed property,” defined earlier, placed in service after June 18, 1984, is not used predominantly (more than 50%) in a qualified
business use during any tax year:
The section 179 deduction on the property is not allowable, and
You must depreciate the property using the straight line method.
Listed property placed in service before 1987.
For listed property placed in service before 1987, depreciate the property over the following period:
|Class of Property
|18-year real property
|19-year real property
If you must use the above recovery periods for listed property not used predominantly in a trade or business, use the percentages
16 titled Listed Property Not Used Predominantly (Other Than 18- or 19-year Real Property),
and Table 17 for 18- or 19-year real property,
near the end of this publication in the Appendix.
Listed property placed in service after 1986.
For information on listed property placed in service after 1986, see Publication 946.
Meeting the Predominant Use Test
Listed property meets the predominant use test for any tax year if its business use is more than 50% of its total use. You
must allocate the use of
any item of listed property used for more than one purpose during the tax year among its various uses. The percentage of investment
use of listed
property cannot be used as part of the percentage of qualified business use to meet the predominant use test. However, the
combined total of business
and investment use is taken into account to figure your depreciation deduction for the property.
Property does not stop being predominantly used in a qualified business use because of a transfer at death.
Sarah Bradley uses a home computer 50% of the time to manage her investments. She also uses the computer 40% of the time in
her part-time consumer
research business. Sarah's home computer is listed property because it is not used at a regular business establishment. Because
her business use of
the computer does not exceed 50%, the computer is not predominantly used in a qualified business use for the tax year. Because
she does not meet the
predominant use test, she cannot elect a section 179 deduction for this property. Her combined rate of business/investment
use for determining her
depreciation deduction is 90%.
A qualified business use is any use in your trade or business. However, it does not include:
The use of property held merely to produce income (investment use),
The leasing of property to any 5% owner or related person (to the point that the property is used by a 5% owner or person related
to the owner or lessee of the property),
The use of property as compensation for the performance of services by a 5% owner or related person, or
The use of property as compensation for the performance of services by any person (other than a5% owner or related person) unless
the value of the use is included in that person's gross income for the use of the property and income tax is withheld on that
amount where required.
See Employees, later.
A 5% owner of a business, other than a corporation, is any person who owns more than 5% of the capital or profits
interest in the business.
A 5% owner of a corporation is any person who owns, or is considered to own:
More than 5% of the outstanding stock of the corporation, or
Stock possessing more than 5% of the total combined voting power of all stock in the corporation.
A related person is anyone related to a taxpayer as discussed under Related persons,
in chapter 2 under Nonqualifying Property
in Publication 946.
The use of listed property for entertainment, recreation, or amusement purposes is treated as a qualified business use only
to the extent that
expenses (other than interest and property tax expenses) for its use are deductible as ordinary and necessary business expenses.
See Publication 463.
Leasing or Compensatory Use of Aircraft
If at least 25% of the total use of any aircraft during the tax year is for a qualified business use, the leasing or compensatory
use of the
aircraft by a 5% owner or related person is treated as a qualified business use.
The use of a vehicle for commuting is not business use, regardless of whether work is performed during the trip.
Use of Your Passenger Automobile by Another Person
If someone else uses your automobile, that use is not business use unless:
That use is directly connected with your business,
The value of the use is property reported by you as income to the other person and tax is withheld on the income where required,
The value of the use results in a payment of fair market rent.
Any payment to you for the use of the automobile is treated as a rent payment for 3).
Any use by an employee of his or her own listed property (or listed property rented by an employee) in performing services
as an employee is not
business use unless:
Use for the employer's convenience.
Whether the use of listed property is for the employer's convenience must be determined from all the facts. The use
is for the employer's
convenience if it is for a substantial business reason of the employer. The use of listed property during the employee's regular
working hours to
carry on the employer's business is generally for the employer's convenience.
Use required as a condition of employment.
Whether the use of listed property is a condition of employment depends on all the facts and circumstances. The use
of property must be required
for the employee to perform duties properly. The employer need not explicitly require the employee to use the property. A
mere statement by the
employer that the use of the property is a condition of employment is not sufficient.
Virginia Sycamore is employed as a courier with We Deliver which provides local courier services. She owns and uses a motorcycle
packages to downtown offices. We Deliver explicitly requires all delivery persons to own a small car or motorcycle for use
in their employment. The
company reimburses delivery persons for their costs. Virginia's use of the motorcycle is for the convenience of We Deliver
and is required as a
condition of employment.
Bill Nelson is an inspector for Uplift, a construction company with many sites in the local area. He must travel to these
sites on a regular basis.
Uplift does not furnish an automobile or explicitly require him to use his own automobile. However, it reimburses him for
any costs he incurs in
traveling to the various sites. The use of his own automobile or a rental automobile is for the convenience of Uplift and
is required as a condition
For passenger automobiles and other means of transportation, allocate the property's use on the basis of mileage. You determine
the percentage of
qualified business use by dividing the number of miles the vehicle is driven for business purposes during the year by the
total number of miles the
vehicle is driven for all purposes (including business miles) during the year.
For other items of listed property, allocate the property's use on the basis of the most appropriate unit of time. For example,
you can determine
the percentage of business use of a computer by dividing the number of hours the computer is used for business purposes during
the year by the total
number of hours the computer is used for all purposes (including business hours) during the year.
Applying the Predominant Use Test
You must apply the predominant use test for an item of listed property each year of the recovery period.
If any item of listed property is not used predominantly in a qualified business use in the year it is placed in service:
The property is not eligible for a section 179 deduction, and
The depreciation deduction must be figured using the straight line method.
The required use of the straight line method for an item of listed property that does not meet the predominant use test is
not the same as electing
the straight line method. It does not mean that you have to use the straight line method for other property in the same class
as the item of listed
Years After the First Recovery Year
If you use listed property predominantly (more than 50%) in a qualified business use in the tax year you place it in service,
but not in a
subsequent tax year during the recovery period, the following rules apply:
Figure depreciation using the straight line method. Do this for each year, beginning with the year you no longer use the property
predominantly in a qualified business use, and
Figure any excess depreciation on the property and add it to:
Your gross income, and
The adjusted basis of your property.
See Recapture of excess depreciation, next.
Recapture of excess depreciation.
You must include any excess depreciation in your gross income for the first tax year the property is not predominantly
used in a qualified business
use. Any excess depreciation must also be added to the adjusted basis of your property. Excess depreciation is the excess
(if any) of:
The amount of depreciation allowable for the property (including any section 179 deduction claimed) for tax years before the
first tax year
the property was not predominantly used in a qualified business use, over
The amount of depreciation that would have been allowable for those years if the property were not used predominantly in a
business use for the year it was placed in service. This means you figure your depreciation using the percentages fromTable
16 or 17.
For information on investment credit recapture, see the instructions for Form 4255.
Deductions After Recovery Period
When listed property (other than passenger automobiles) is used for business, investment, and personal purposes, no deduction
is ever allowable for
the personal use. In tax years after the recovery period, you must determine if there is any unrecovered basis remaining before
you compute the
depreciation deduction for that tax year. To make this determination, figure the depreciation for earlier tax years as if
your property were used 100%
for business or investment purposes, beginning with the first tax year in which some or all use is for business or investment.
See Car Used 50%
or Less for Business in Publication 917.
The limitations on cost recovery deductions apply to the rental of listed property. The following discussion covers the rules
that apply to the
lessor (the owner of the property) and the lessee (the person who rents the property from the owner). SeeLeasing a Car in Publication 917
for a discussion of leased passenger automobiles.
The limitations on cost recovery generally do not apply to any listed property leased or held for leasing by anyone regularly
engaged in the
business of leasing listed property.
A person is considered regularly engaged in the business of leasing listed property only if contracts for leasing of listed property are
entered into with some frequency over a continuous period of time. This determination is made on the basis of the facts and
circumstances in each case
and takes into account the nature of the person's business in its entirety. Occasional or incidental leasing activity is insufficient.
For example, a
person leasing only one passenger automobile during a tax year is not regularly engaged in the business of leasing automobiles.
An employer who allows
an employee to use the employer's property for personal purposes and charges the employee for the use is not regularly engaged
in the business of
leasing the property used by the employee.
A lessee of listed property (other than passenger automobiles), must include an amount in gross income called the inclusion
amount for the first
tax year the property is not used predominantly in a qualified business use.
Inclusion amount for property leased before 1987.
You determine the inclusion amount for property leased after June 18, 1984 and before 1987 by multiplying the fair
market value of the property by
both the average business/investment use percentage and the applicable percentage. You can find the applicable percentages
for listed property that is
5- or 10-year recovery property in Tables 19 or 20 in Appendix A of Publication 946.
The lease term
for listed property other than 18- or 19-year real property, and residential rental or nonresidential real property,
includes options to renew. For 18- or 19-year real property and residential rental or nonresidential real property that is
listed property, the period
of the lease does not include any option to renew at fair market value, determined at the time of renewal. You treat two or
more successive leases
that are part of the same transaction (or a series of related transactions) for the same or substantially similar property
as one lease.
The lessee adds the inclusion amount to gross income in the next tax year if:
The lease term begins within 9 months before the close of the lessee's tax year,
The lessee does not use the property predominantly in a qualified business use during that portion of the tax year, and
The lease term continues into the lessee's next tax year.
The lessee determines the inclusion amount by taking into account the average of the business/investment use for both tax
years and the
applicable percentage for the tax year the lease term begins.
If the lease term is less than one year, the amount included in gross income is the amount that bears the same ratio
to the additional inclusion
amount as the number of days in the lease term bears to 365.
Maximum inclusion amount.
The inclusion amount cannot be more than the sum of the deductible amounts of rent allocable to the lessee's tax year
in which the amount must be
included in gross income.
What Records Must Be Kept
You cannot take any depreciation or section 179 deduction for the use of listed property (including passenger automobiles)
unless you can prove
business/investment use with adequate records or sufficient evidence to support your own statements.
How long to keep records.
For listed property, records must be kept for as long as any excess depreciation can be recaptured (included in income).
To meet the adequate records requirement, you must maintain an account book, diary, log, statement of expense, trip sheet,
or similar record or
other documentary evidence that, together with the receipt, is sufficient to establish each element of an expenditure or use.
It is not necessary to
record information in an account book, diary, or similar record if the information is already shown on the receipt. However,
your records should back
up your receipts in an orderly manner.
Elements of Expenditure or Use
The records or other documentary evidence must support:
The amount of each separate expenditure, such as the cost of acquiring the item, maintenance and repair costs, capital improvement
lease payments, and any other expenses,
The amount of each business and investment use (based on an appropriate measure, such as mileage for vehicles and time for
property), and the total use of the property for the tax year,
The date of the expenditure or use, and
The business or investment purpose for the expenditure or use.
Written documents of your expenditure or use are generally better evidence than oral statements alone. A written record prepared
at or near the
time of the expenditure or use has greater value as proof of the expenditure or use. A daily log is not required. However,
some type of record
containing the elements of an expenditure or the business or investment use of listed property made at or near the time and
backed up by other
documents is preferable to a statement prepared later.
The elements of an expenditure or use must be recorded at the time you have full knowledge of the elements. An expense account
statement made from
an account book, diary, or similar record prepared or maintained at or near the time of the expenditure or use is generally
considered a timely record
if in the regular course of business:
The statement is submitted by an employee to the employer, or
The statement is submitted by an independent contractor to the client or customer.
For example, a log maintained on a weekly basis, which accounts for use during the week, will be considered a record made
at or near the time of
Business Purpose Supported
An adequate record of business purpose must generally be in the form of a written statement. However, the amount of backup
necessary to establish a
business purpose depends on the facts and circumstances of each case. A written explanation of the business purpose will not
be required if the
purpose can be determined from the surrounding facts and circumstances. For example, a salesperson visiting customers on an
established sales route
will not normally need a written explanation of the business purpose of his or her travel.
An adequate record contains enough information on each element of every business or investment use. The amount of detail required
to support the
use depends on the facts and circumstances. For example, a taxpayer whose only business use of a truck is to make customer
deliveries on an
established route can satisfy the requirement by recording the length of the route, including the total number of miles driven
during the tax year and
the date of each trip at or near the time of the trips.
Although an adequate record generally must be written, a record of the business use of listed property, such as a computer
or automobile, can be
prepared in a computer memory device using a logging program.
Separate or Combined
Expenditures or Uses
Each use by you is normally considered a separate use. However, repeated uses can be combined as a single item.
Each expenditure is recorded as a separate item and not combined with other expenditures. If you choose, however, amounts
spent for the use of
listed property during a tax year, such as for gasoline or automobile repairs, can be combined. If these expenses are combined,
you do not need to
support the business purpose of each expense. Instead, you can divide the expenses based on the total business use of the
Uses which can be considered part of a single use, such as a round trip or uninterrupted business use, can be accounted for
by a single record. For
example, use of a truck to make deliveries at several locations which begin and end at the business premises and can include
a stop at the business in
between deliveries can be accounted for by a single record of miles driven. Use of a passenger automobile by a salesperson
for a business trip away
from home over a period of time can be accounted for by a single record of miles traveled. Minimal personal use (such as a
stop for lunch between two
business stops) is not an interruption of business use.
If any of the information on the elements of an expenditure or use is confidential, it does not need to be in the account
book or similar record if
it is recorded at or near the time of the expenditure or use. It must be kept elsewhere and made available as support to the
district director on
If you have not fully supported a particular element of an expenditure or use, but have complied with the adequate records
requirement for the
expenditure or use to the district director's satisfaction, you can establish this element by any evidence the district director
If you fail to establish that you have substantially complied with the adequate records requirement for an element of an expenditure
or use to the
district director's satisfaction, you must establish the element:
By your own oral or written statement containing detailed information as to the element, and
By other evidence sufficient to establish the element.
If the element is the cost or amount, time, place, or date of an expenditure or use, its supporting evidence must be direct,
such as oral testimony
by witnesses or a written statement setting forth detailed information about the element or the documentary evidence. If the
element is the business
purpose of an expenditure, its supporting evidence can be circumstantial evidence.
You can maintain an adequate record for portions of a tax year and use that record to support your business and investment
use for the entire tax
year if it can be shown by other evidence that the periods for which an adequate record is maintained are representative of
use throughout the year.
When you establish that failure to produce adequate records is due to loss of the records through circumstances beyond your
control, such as
through fire, flood, earthquake, or other casualty, you have the right to support a deduction by reasonable reconstruction
of your expenditures and
on Form 4562
If you claim a deduction for any listed property, you must provide the requested information on page 2, Section B of Form
4562. If you claim a
deduction for any vehicle, you must answer certain questions onpage 2 of Form 4562 to provide information about the vehicle
Employees claiming the standard mileage rate or actual expenses (including depreciation) must use Form 2106 instead
of Part V of Form 4562.
Employees claiming the standard mileage rate may be able to use Form 2106–EZ.
Employer who provides vehicles to employees.
An employer who provides vehicles to employees must obtain enough information from those employees to provide the
requested information onForm
An employer who provides more than five vehicles to employees need not include any information on his or her tax return.
Instead, the employer must
obtain the information from his or her employees and indicate on his or her return that the information was obtained and is
You do not need to provide the information requested on page 2 of Form 4562 if, as an employer:
You can satisfy the requirements of a written policy statement for vehicles either not used for personal purposes, or not
used for personal
purposes other than commuting, or
You treat all vehicle use by employees as personal use.
See the instructions for Form 4562.
Deductions in Later Years
When listed property is used for business, investment, and personal purposes, no deduction is allowable for its personal use
either in the current
year or any later tax year. In later years, you must determine if there is any remaining unadjusted or unrecovered basis before
you compute the
depreciation deduction for that tax year. In making this determination, figure the depreciation deductions for earlier tax
years as if the listed
property were used 100% for business or investment purposes in those years, beginning with the first tax year in which some
or all of the property use
is for business or investment.
For more information about deductions after the recovery period for automobiles, see Publication 917.
The following tables are for use in figuring depreciation deductions under the ACRS system.
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