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Pub. 946, How To Depreciate Property 2004 Tax Year

Chapter 5 - Additional Rules for Listed Property

This is archived information that pertains only to the 2004 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.

Introduction

This chapter discusses the deduction limits and other special rules that apply to certain listed property. Listed property includes cars and other property used for transportation, property used for entertainment, and certain computers and cellular phones.

Deductions for listed property (other than certain leased property) are subject to the following special rules and limits.

  • Deduction for employees. If your use of the property is not for your employer's convenience or is not required as a condition of your employment, you cannot deduct depreciation or rent expenses for your use of the property as an employee.

  • Business-use requirement. If the property is not used predominantly (more than 50%) for qualified business use, you cannot claim the section 179 deduction or a special depreciation allowance (or Liberty Zone depreciation allowance). In addition, you must figure any depreciation deduction under the Modified Accelerated Cost Recovery System (MACRS) using the straight line method over the ADS recovery period. You may also have to recapture (include in income) any excess depreciation claimed in previous years. A similar inclusion amount applies to certain leased property.

  • Passenger automobile limits and rules. Annual limits apply to depreciation deductions (including section 179 deductions) for certain passenger automobiles. You can continue to deduct depreciation for the unrecovered basis resulting from these limits after the end of the recovery period.

This chapter defines listed property and explains the special rules and depreciation deduction limits that apply, including the special inclusion amount rule for leased property. It also discusses the recordkeeping rules for listed property and explains how to report information about the property on your tax return.

Caution
For information on the limits on depreciation deductions for listed property placed in service before 1987, see Publication 534.

Useful Items - You may want to see:

Publication

  • 463 Travel, Entertainment, Gift, and Car Expenses

  • 535 Business Expenses

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

Form (and Instructions)

  • 2106
    Employee Business Expenses

  • 2106-EZ
    Unreimbursed Employee Business Expenses

  • 4562
    Depreciation and Amortization

  • 4797
    Sales of Business Property

See chapter 7 for information about getting publications and forms.

What Is Listed Property?

Terms you may need to know (see Glossary):

Capitalized
Commuting
Improvement
Recovery period
Straight line method

Listed property is any of the following.

  • Passenger automobile weighing 6,000 pounds or less.

  • Any other property used for transportation, unless it is an excepted vehicle.

  • Property generally used for entertainment, recreation, or amusement (including photographic, phonographic, communication, and video-recording equipment).

  • Computers and related peripheral equipment, unless used only at a regular business establishment and is owned or leased by the person operating the establishment. A regular business establishment includes a portion of a dwelling unit that is used both regularly and exclusively for business as discussed in Publication 587.

  • Cellular telephones (or similar telecommunication equipment).

Improvements to listed property.   An improvement made to listed property that must be capitalized is treated as a new item of depreciable property. The recovery period and method of depreciation that apply to the listed property as a whole also apply to the improvement. For example, if you must depreciate the listed property using the straight line method, you also must depreciate the improvement using the straight line method.

Passenger Automobiles

A passenger automobile is any four-wheeled vehicle made primarily for use on public streets, roads, and highways and rated at 6,000 pounds or less of unloaded gross vehicle weight (6,000 pounds or less of gross vehicle weight for trucks and vans). It includes any part, component, or other item physically attached to the automobile or usually included in the purchase price of an automobile.

The following vehicles are not considered passenger automobiles for these purposes.

  • An ambulance, hearse, or combination ambulance-hearse used directly in a trade or business.

  • A vehicle used directly in the trade or business of transporting persons or property for pay or hire.

  • A truck or van that is a qualified nonpersonal use vehicle placed in service after July 6, 2003.

Qualified nonpersonal use vehicles.   Qualified nonpersonal use vehicles are vehicles that by their nature are not likely to be used more than a minimal amount for personal purposes. They include the trucks and vans listed as excepted vehicles under Other Property Used for Transportation, next. They also include trucks and vans that have been specially modified so that they are not likely to be used more than a minimal amount for personal purposes, such as by installation of permanent shelving and painting the vehicle to display advertising or the company's name.

Caution
Although vehicles used to transport persons or property for pay or hire and vehicles rated at more than the 6,000-pound threshold are not passenger automobiles, they are still “other property used for transportation” (discussed next). They are therefore listed property items subject to the special rules for such property other than the passenger automobile limits and rules.

For a detailed discussion of passenger automobiles, including leased passenger automobiles, see Publication 463.

Other Property Used for Transportation

Other property used for transportation includes trucks, buses, boats, airplanes, motorcycles, and any other vehicles used to transport persons or goods.

Excepted vehicles.   Other property used for transportation does not include the following qualified nonpersonal use vehicles (defined earlier under Passenger Automobiles).
  • Clearly marked police and fire vehicles.

  • Unmarked vehicles used by law enforcement officers if the use is officially authorized.

  • Ambulances used as such and hearses used as such.

  • Any vehicle with a loaded gross vehicle weight of over 14,000 pounds that is designed to carry cargo.

  • Bucket trucks (cherry pickers), cement mixers, dump trucks (including garbage trucks), flatbed trucks, and refrigerated trucks.

  • Combines, cranes and derricks, and forklifts.

  • Delivery trucks with seating only for the driver, or only for the driver plus a folding jump seat.

  • Qualified moving vans.

  • Qualified specialized utility repair trucks.

  • School buses used in transporting students and employees of schools.

  • Other buses with a capacity of at least 20 passengers that are used as passenger buses.

  • Tractors and other special purpose farm vehicles.

Clearly marked police and fire vehicle.   A clearly marked police or fire vehicle is a vehicle that meets all the following requirements.
  • It is owned or leased by a governmental unit or an agency or instrumentality of a governmental unit.

  • It is required to be used for commuting by a police officer or fire fighter who, when not on a regular shift, is on call at all times.

  • It is prohibited from being used for personal use (other than commuting) outside the limit of the police officer's arrest powers or the fire fighter's obligation to respond to an emergency.

  • It is clearly marked with painted insignia or words that make it readily apparent that it is a police or fire vehicle. A marking on a license plate is not a clear marking for these purposes.

Qualified moving van.   A qualified moving van is any truck or van used by a professional moving company for moving household or business goods if the following requirements are met.
  • No personal use of the van is allowed other than for travel to and from a move site or for minor personal use, such as a stop for lunch on the way from one move site to another.

  • Personal use for travel to and from a move site happens no more than five times a month on average.

  • Personal use is limited to situations in which it is more convenient to the employer, because of the location of the employee's residence in relation to the location of the move site, for the van not to be returned to the employer's business location.

Qualified specialized utility repair truck.   A truck is a qualified specialized utility truck if it is not a van or pickup truck and all the following apply.
  • The truck was specifically designed for and is used to carry heavy tools, testing equipment, or parts.

  • Shelves, racks, or other permanent interior construction has been installed to carry and store the tools, equipment, or parts and would make it unlikely that the truck would be used, other than minimally, for personal purposes.

  • The employer requires the employee to drive the truck home in order to be able to respond in emergency situations for purposes of restoring or maintaining electricity, gas, telephone, water, sewer, or steam utility services.

Computers and Related Peripheral Equipment

A computer is a programmable, electronically activated device capable of accepting information, applying prescribed processes to the information, and supplying the results of those processes with or without human intervention. It consists of a central processing unit with extensive storage, logic, arithmetic, and control capabilities.

Related peripheral equipment is any auxiliary machine which is designed to be controlled by the central processing unit of a computer.

The following are neither computers nor related peripheral equipment.

  • Any equipment that is an integral part of other property that is not a computer.

  • Typewriters, calculators, adding and accounting machines, copiers, duplicating equipment, and similar equipment.

  • Equipment of a kind used primarily for the user's amusement or entertainment, such as video games.

Can Employees Claim a Deduction?

If you are an employee, you can claim a depreciation deduction for the use of your listed property (whether owned or rented) in performing services as an employee only if your use is a business use. The use of your property in performing services as an employee is a business use only if both the following requirements are met.

  • The use is for your employer's convenience.

  • The use is required as a condition of your employment.

If these requirements are not met, you cannot deduct depreciation (including the section 179 deduction) or rent expenses for your use of the property as an employee.

Employer's convenience.   Whether the use of listed property is for your employer's convenience must be determined from all the facts. The use is for your employer's convenience if it is for a substantial business reason of the employer. The use of listed property during your regular working hours to carry on your employer's business generally is for the employer's convenience.

Condition of employment.   Whether the use of listed property is a condition of your employment depends on all the facts and circumstances. The use of property must be required for you to perform your duties properly. Your employer does not have to require explicitly that you use the property. However, a mere statement by the employer that the use of the property is a condition of your employment is not sufficient.

Example 1.

Virginia Sycamore is employed as a courier with We Deliver, which provides local courier services. She owns and uses a motorcycle to deliver packages to downtown offices. We Deliver explicitly requires all delivery persons to own a car or motorcycle for use in their employment. Virginia's use of the motorcycle is for the convenience of We Deliver and is required as a condition of employment.

Example 2.

Bill Nelson is an inspector for Uplift, a construction company with many sites in the local area. He must travel to these sites on a regular basis. Uplift does not furnish an automobile or explicitly require him to use his own automobile. However, it pays him for any costs he incurs in traveling to the various sites. The use of his own automobile or a rental automobile is for the convenience of Uplift and is required as a condition of employment.

Example 3.

Assume the same facts as in Example 2 except that Uplift furnishes a car to Bill, who chooses to use his own car and receive payment for using it. The use of his own car is neither for the convenience of Uplift nor required as a condition of employment.

Example 4.

Marilyn Lee is a pilot for Y Company, a small charter airline. Y requires pilots to obtain 80 hours of flight time annually in addition to flight time spent with the airline. Pilots usually can obtain these hours by flying with the Air Force Reserve or by flying part-time with another airline. Marilyn owns her own airplane. The use of her airplane to obtain the required flight hours is neither for the convenience of the employer nor required as a condition of employment.

Example 5.

David Rule is employed as an engineer with Zip, an engineering contracting firm. He occasionally takes work home at night rather than work late in the office. He owns and uses a home computer which is virtually identical to the office model. His use of the computer is neither for the convenience of his employer nor required as a condition of employment.

What Is the Business-Use Requirement?

Terms you may need to know (see Glossary):

Adjusted basis
Business/investment use
Capitalized
Commuting
Declining balance method
Fair market value (FMV)
Nonresidential real property
Placed in service
Recapture
Recovery period
Straight line method

You can claim the section 179 deduction and a special depreciation allowance (or Liberty Zone depreciation allowance) for listed property and depreciate listed property using GDS and a declining balance method if the property meets the business-use requirement. To meet this requirement, listed property must be used predominantly (more than 50% of its total use) for qualified business use. If this requirement is not met, the following rules apply.

  • Property not used predominantly for qualified business use during the year it is placed in service does not qualify for the section 179 deduction.

  • Property not used predominantly for qualified business use during the year it is placed in service does not qualify for a special depreciation allowance (or Liberty Zone depreciation allowance).

  • Any depreciation deduction under MACRS for property not used predominantly for qualified business use during any year must be figured using the straight line method over the ADS recovery period. This rule applies each year of the recovery period.

  • Excess depreciation on property previously used predominantly for qualified business use must be recaptured (included in income) in the first year in which it is no longer used predominantly for qualified business use.

  • A lessee must include an amount in income if the leased property is not used predominantly for qualified business use.

Caution
Being required to use the straight line method for an item of listed property not used predominantly for qualified business use is not the same as electing the straight line method. It does not mean that you have to use the straight line method for other property in the same class as the item of listed property.

Exception for leased property.   The business-use requirement generally does not apply to any listed property leased or held for leasing by anyone regularly engaged in the business of leasing listed property.

  You are considered regularly engaged in the business of leasing listed property only if you enter into contracts for the leasing of listed property with some frequency over a continuous period of time. This determination is made on the basis of the facts and circumstances in each case and takes into account the nature of your business in its entirety. Occasional or incidental leasing activity is insufficient. For example, if you lease only one passenger automobile during a tax year, you are not regularly engaged in the business of leasing automobiles. An employer who allows an employee to use the employer's property for personal purposes and charges the employee for the use is not regularly engaged in the business of leasing the property used by the employee.

How To Allocate Use

To determine whether the business-use requirement is met, you must allocate the use of any item of listed property used for more than one purpose during the year among its various uses.

For passenger automobiles and other means of transportation, allocate the property's use on the basis of mileage. You determine the percentage of qualified business use by dividing the number of miles you drove the vehicle for business purposes during the year by the total number of miles you drove the vehicle for all purposes (including business miles) during the year.

For other listed property, allocate the property's use on the basis of the most appropriate unit of time the property is actually used (rather than merely being available for use). For example, you can determine the percentage of business use of a computer by dividing the number of hours you used the computer for business purposes during the year by the total number of hours you used the computer for all purposes (including business use) during the year.

Entertainment use.   Treat the use of listed property for entertainment, recreation, or amusement purposes as a business use only to the extent you can deduct expenses (other than interest and property tax expenses) due to its use as an ordinary and necessary business expense.

Commuting use.   The use of an automobile for commuting is not business use, regardless of whether work is performed during the trip. For example, a business telephone call made on a car telephone while commuting to work does not change the character of the trip from commuting to business. This is also true for a business meeting held in a car while commuting to work. Similarly, a business call made on an otherwise personal trip does not change the character of a trip from personal to business. The fact that an automobile is used to display material that advertises the owner's or user's trade or business does not convert an otherwise personal use into business use.

Use of your automobile by another person.   If someone else uses your automobile, do not treat that use as business use unless one of the following conditions applies.
  1. That use is directly connected with your business.

  2. You properly report the value of the use as income to the other person and withhold tax on the income where required.

  3. You are paid a fair market rent.

Treat any payment to you for the use of the automobile as a rent payment for purposes of item (3).

Employee deductions.   If you are an employee, do not treat your use of listed property as business use unless it is for your employer's convenience and is required as a condition of your employment. See Can Employees Claim a Deduction, earlier.

Qualified Business Use

Qualified business use of listed property is any use of the property in your trade or business. However, it does not include the following uses.

  • The leasing of property to any 5% owner or related person (to the extent the property is used by a 5% owner or person related to the owner or lessee of the property).

  • The use of property as pay for the services of a 5% owner or related person.

  • The use of property as pay for services of any person (other than a 5% owner or related person), unless the value of the use is included in that person's gross income and income tax is withheld on that amount where required.

Caution
Property does not stop being used predominantly for qualified business use because of a transfer at death.

Exception for leasing or compensatory use of aircraft.   Treat the leasing or compensatory use of any aircraft by a 5% owner or related person as a qualified business use if at least 25% of the total use of the aircraft during the year is for a qualified business use.

5% owner.   For a business entity that is not a corporation, a 5% owner is any person who owns more than 5% of the capital or profits interest in the business.

  For a corporation, a 5% owner is any person who owns, or is considered to own, either of the following.
  • More than 5% of the outstanding stock of the corporation.

  • Stock possessing more than 5% of the total combined voting power of all stock in the corporation.

Related persons.   For a description of related persons, see Related persons in the discussion on property owned or used in 1986 under Can You Use MACRS To Depreciate Your Property in chapter 1. For this purpose, however, treat as related persons only the relationships listed in items (1) through (10) of that discussion and substitute “50%” for “10%” each place it appears.

Examples.   The following examples illustrate whether the use of business property is qualified business use.

Example 1.

John Maple is the sole proprietor of a plumbing contracting business. John employs his brother, Richard, in the business. As part of Richard's pay, he is allowed to use one of the company automobiles for personal use. The company includes the value of the personal use of the automobile in Richard's gross income and properly withholds tax on it. The use of the automobile is pay for the performance of services by a related person, so it is not a qualified business use.

Example 2.

John, in Example 1, allows unrelated employees to use company automobiles for personal purposes. He does not include the value of the personal use of the company automobiles as part of their compensation and he does not withhold tax on the value of the use of the automobiles. This use of company automobiles by employees is not a qualified business use.

Example 3.

James Company Inc. owns several automobiles that its employees use for business purposes. The employees also are allowed to take the automobiles home at night. The fair market value of each employee's use of an automobile for any personal purpose, such as commuting to and from work, is reported as income to the employee and James Company withholds tax on it. This use of company automobiles by employees, even for personal purposes, is a qualified business use for the company.

Investment Use

The use of property to produce income in a nonbusiness activity (investment use) is not a qualified business use. However, you can treat the investment use as business use to figure the depreciation deduction for the property in a given year.

Example 1.

Sarah Bradley uses a home computer 50% of the time to manage her investments. She also uses the computer 40% of the time in her part-time consumer research business. Sarah's home computer is listed property because it is not used at a regular business establishment. She does not use the computer predominantly for qualified business use. Therefore, she cannot elect a section 179 deduction or claim a special depreciation allowance for the computer. She must depreciate it using the straight line method over the ADS recovery period. (Her combined business/investment use for determining her depreciation deduction is 90%.)

Example 2.

If Sarah uses her computer 30% of the time to manage her investments and 60% of the time in her consumer research business, it is used predominantly for qualified business use. She can elect a section 179 deduction and, if she does not deduct all the computer's cost, she can claim a special depreciation allowance and depreciate the computer using the 200% declining balance method over the GDS recovery period. (Her combined business/investment use for determining her depreciation deduction is 90%.)

Recapture of Excess Depreciation

If you used listed property more than 50% in a qualified business use in the year you placed it in service, you must recapture (include in income) excess depreciation in the first year you use it 50% or less. You also increase the adjusted basis of your property by the same amount.

Excess depreciation is:

  1. The depreciation allowable for the property (including any section 179 deduction claimed) for years before the first year you do not use the property predominantly for qualified business use, minus

  2. The depreciation that would have been allowable for those years if you had not used the property predominantly for qualified business use in the year you placed it in service.

To determine the amount in (2) above, you must refigure the depreciation using the straight line method and the ADS recovery period.

Example.

In June 2000, Ellen Rye purchased and placed in service a pickup truck that cost $18,000. She used it only for qualified business use for 2000 through 2003. Ellen claimed a section 179 deduction of $10,000 based on the purchase of the truck. She began depreciating it using the 200% DB method over a 5-year GDS recovery period. (The pickup truck's gross vehicle weight was over 6,000 pounds, so it was not subject to the passenger automobile limits discussed later under Do the Passenger Automobile Limits Apply.) During 2004, she used the truck 50% for business and 50% for personal purposes. She includes $4,018 excess depreciation in her gross income for 2004. The excess depreciation is determined as follows.

Total section 179 deduction ($10,000) and depreciation claimed ($6,618) for 2000 through 2003. (Depreciation is from Table A-1.) $16,618
Minus: Depreciation allowable (Table A-8):    
2000 – 10% of $18,000 $1,800  
2001 – 20% of $18,000 3,600  
2002 – 20% of $18,000 3,600  
2003 – 20% of $18,000 3,600 12,600
Excess depreciation $4,018

If Ellen's use of the truck does not change to 50% for business and 50% for personal purposes until 2006, there will be no excess depreciation. The total depreciation allowable using Table A-8 through 2006 will be $18,000, which equals the total of the section 179 deduction and depreciation she will have claimed.

Where to figure and report recapture.   Use Form 4797, Part IV, to figure the recapture amount. Report the recapture amount as other income on the same form or schedule on which you took the depreciation deduction. For example, report the recapture amount as other income on Schedule C (Form 1040) if you took the depreciation deduction on Schedule C. If you took the depreciation deduction on Form 2106, report the recapture amount as other income on Form 1040, line 21.

Lessee's Inclusion Amount

If you use leased listed property other than a passenger automobile for business/investment use, you must include an amount in your income in the first year your qualified business-use percentage is 50% or less. Your qualified business-use percentage is the part of the property's total use that is qualified business use (defined earlier). For the inclusion amount rules for a leased passenger automobile, see Leasing a Car in chapter 4 of Publication 463.

The inclusion amount is the sum of Amount A and Amount B, described next. However, see the special rules for the inclusion amount, later, if your lease begins in the last 9 months of your tax year or is for less than one year.

Amount A.   Amount A is:
  1. The fair market value of the property, multiplied by

  2. The business/investment use for the first tax year the qualified business-use percentage is 50% or less, multiplied by

  3. The applicable percentage from Table A-19 in Appendix A.

  The fair market value of the property is the value on the first day of the lease term. If the capitalized cost of an item of listed property is specified in the lease agreement, you must treat that amount as the fair market value.

Amount B.   Amount B is:
  1. The fair market value of the property, multiplied by

  2. The average of the business/investment use for all tax years the property was leased that precede the first tax year the qualified business-use percentage is 50% or less, multiplied by

  3. The applicable percentage from Table A-20 in Appendix A.

Maximum inclusion amount.   The inclusion amount cannot be more than the sum of the deductible amounts of rent for the tax year in which the lessee must include the amount in gross income.

Inclusion amount worksheet.   The following worksheet is provided to help you figure the inclusion amount for leased listed property.

Inclusion Amount Worksheet for Leased Listed Property

1. Fair market value  
2. Business/investment use for first year business use is 50% or less  
3. Multiply line 1 by line 2.  
4. Rate (%) from Table A-19  
5. Multiply line 3 by line 4. This is Amount A.  
6. Fair market value  
7. Average business/investment use for years property leased before the first year business use is 50% or less  
8. Multiply line 6 by line 7  
9. Rate (%) from Table A-20  
10. Multiply line 8 by line 9. This is Amount B.  
11. Add line 5 and line 10. This is your inclusion amount. Enter here and as other income on the form or schedule on which you originally took the deduction (for example, Schedule C or F (Form 1040), Form 1040, Form 1120, etc.)  

Example.

On February 1, 2002, Larry House, a calendar year taxpayer, leased and placed in service a computer with a fair market value of $3,000. The lease is for a period of five years. Larry does not use the computer at a regular business establishment, so it is listed property. His business use of the property (all of which is qualified business use) is 80% in 2002, 60% in 2003, and 40% in 2004. He must add an inclusion amount to gross income for 2004, the first tax year his qualified business-use percentage is 50% or less. The computer has a 5-year recovery period under both GDS and ADS. 2004 is the third tax year of the lease, so the applicable percentage from Table A-19 is -19.8%. The applicable percentage from Table A-20 is 22.0%. Larry's deductible rent for the computer for 2004 is $800.

Larry uses the Inclusion Amount Worksheet for Leased Listed Property to figure the amount he must include in income for 2004. His inclusion amount is $224, which is the sum of -$238 (Amount A) and $462 (Amount B).

Inclusion Amount Worksheet for Leased Listed Property

1. Fair market value $3,000  
2. Business/investment use for first year business use is 50% or less 40 %
3. Multiply line 1 by line 2. 1,200  
4. Rate (%) from Table A-19 -19.8 %
5. Multiply line 3 by line 4. This is Amount A. -238  
6. Fair market value 3,000  
7. Average business/investment use for years property leased before the first year business use is 50% or less 70 %
8. Multiply line 6 by line 7 2,100  
9. Rate (%) from Table A-20 22.0 %
10. Multiply line 8 by line 9. This is Amount B. 462  
11. Add line 5 and line 10. This is your inclusion amount. Enter here and as other income on the form or schedule on which you originally took the deduction (for example, Schedule C or F (Form 1040), Form 1040, Form 1120, etc.) $224  

Lease beginning in the last 9 months of your tax year.    The inclusion amount is subject to a special rule if all the following apply.
  • The lease term begins within 9 months before the close of your tax year.

  • You do not use the property predominantly (more than 50%) for qualified business use during that part of the tax year.

  • The lease term continues into your next tax year.

Under this special rule, add the inclusion amount to income in the next tax year. Figure the inclusion amount by taking into account the average of the business/investment use for both tax years (line 2 of the Inclusion Amount Worksheet for Leased Listed Property) and the applicable percentage for the tax year the lease term begins. (Skip lines 6 through 9 of the worksheet and enter zero on line 10.)

Example 1.

On August 1, 2003, Julie Rule, a calendar year taxpayer, leased and placed in service an item of listed property. The property is 5-year property with a fair market value of $10,000. Her property has a recovery period of 5 years under ADS. The lease is for 5 years. Her business use of the property was 50% in 2003 and 90% in 2004. She paid rent of $3,600 for 2004, of which $3,240 is deductible. She must include $147 in income in 2004. The $147 is the sum of Amount A and Amount B. Amount A is $147 ($10,000 × 70% × 2.1%), the product of the fair market value, the average business use for 2003 and 2004, and the applicable percentage for year one from Table A-19. Amount B is zero.

Lease for less than one year.   A special rule for the inclusion amount applies if the lease term is less than one year and you do not use the property predominantly (more than 50%) for qualified business use. The amount included in income is the inclusion amount (figured as described in the preceding discussions) multiplied by a fraction. The numerator of the fraction is the number of days in the lease term and the denominator is 365 (or 366 for leap years).

  The lease term for listed property other than residential rental or nonresidential real property includes options to renew. If you have two or more successive leases that are part of the same transaction (or a series of related transactions) for the same or substantially similar property, treat them as one lease.

Example 2.

On October 1, 2003, John Joyce, a calendar year taxpayer, leased and placed in service an item of listed property that is 3-year property. This property had a fair market value of $15,000 and a recovery period of 5 years under ADS. The lease term was 6 months (ending on March 31, 2004), during which he used the property 45% in business. He must include $71 in income in 2004. The $71 is the sum of Amount A and Amount B. Amount A is $71 ($15,000 × 45% × 2.1% × 183/366), the product of the fair market value, the average business use for both years, and the applicable percentage for year one from Table A-19, prorated for the length of the lease. Amount B is zero.

Where to report inclusion amount.   Report the inclusion amount figured as described in the preceding discussions as other income on the same form or schedule on which you took the deduction for your rental costs. For example, report the inclusion amount as other income on Schedule C (Form 1040) if you took the deduction on Schedule C. (If you took the deduction for rental costs on Form 2106, report the inclusion amount as other income on Form 1040, line 21.)

Do the Passenger Automobile Limits Apply?

Terms you may need to know (see Glossary):

Basis
Clean-fuel vehicle
Convention
Placed in service
Recovery period

The depreciation deduction, including the section 179 deduction and the special depreciation allowance or the special Liberty Zone depreciation allowance, you can claim for a passenger automobile each year is limited. (For the definition of a passenger automobile, see Passenger Automobiles under What Is Listed Property, earlier.)

This section describes the maximum depreciation deduction amounts for 2004 and explains how to deduct, after the recovery period, the unrecovered basis of your property that results from applying the passenger automobile limit.

Exception for clean-fuel modifications.   The passenger automobile limits do not apply to any costs you pay to retrofit parts and components to modify an automobile to permit it to run on a clean-burning fuel. The limits apply only to the cost of the automobile without the modification.

Exception for leased cars.   The passenger automobile limits generally do not apply to passenger automobiles leased or held for leasing by anyone regularly engaged in the business of leasing passenger automobiles. For information on when you are considered regularly engaged in the business of leasing listed property, including passenger automobiles, see Exception for leased property, earlier, under What Is the Business-Use Requirement.

Maximum Depreciation Deduction

The passenger automobile limits are the maximum depreciation amounts you can deduct for a passenger automobile. They are based on the date you placed the automobile in service.

Passenger Automobiles

The maximum deduction amounts for most passenger automobiles are shown in the following table.

Maximum Depreciation Deduction for Passenger Automobiles

Date       4th &
Placed 1st 2nd 3rd Later
In Service Year Year Year Years
2004 $10,610 1 $4,800 $2,850 $1,675
5/06/2003–
12/31/2003
10,710 2 4,900 2,950 1,775
1/01/2003–
5/05/2003
7,660 3 4,900 2,950 1,775
2002 7,660 3 4,900 2,950 1,775
2001 7,660 4 4,900 2,950 1,775
2000 3,060 4,900 2,950 1,775
1999 3,060 5,000 2,950 1,775
1998 3,160 5,000 2,950 1,775
1997 3,160 5,000 3,050 1,775
1If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $2,960.
2If you acquired the vehicle before 5/06/03, the maximum deduction is $7,660. If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,060.
3If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,060.
4 If you acquired the vehicle before 9/11/01, you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,060.

Caution
If your business/investment use of the automobile is less than 100%, you must reduce the maximum deduction amount by multiplying the maximum amount by the percentage of business/investment use determined on an annual basis during the tax year.

Caution
If you have a short tax year, you must reduce the maximum deduction amount by multiplying the maximum amount by a fraction. The numerator of the fraction is the number of months and partial months in the short tax year and the denominator is 12.

Example.

On April 15, 2004, Virginia Hart bought and placed in service a new car for $15,000. She used the car only in her business. She files her tax return based on the calendar year. She does not elect a section 179 deduction. She claimed a special depreciation allowance of $7,500 (50% of $15,000). Under MACRS, a car is 5-year property. Since she placed her car in service on April 15 and used it only for business, she uses the percentages in Table A-1 to figure her MACRS depreciation on the car. Virginia multiplies the $7,500 unadjusted basis of her car ($15,000 - $7,500) by 0.20 to get her MACRS depreciation of $1,500 for 2004. Her total depreciation for 2004 is $9,000 ($7,500 plus $1,500). This $9,000 is below the maximum depreciation deduction of $10,610 for passenger automobiles placed in service in 2004. She can deduct the full $9,000.

Electric Vehicles

The maximum depreciation deductions for passenger automobiles that are produced to run primarily on electricity are higher than those for other automobiles. The maximum deduction amounts for electric cars are shown in the following table.

Maximum Depreciation Deduction For Electric Vehicles

Date       4th &
Placed 1st 2nd 3rd Later
In Service Year Year Year Years
2004 $31,830 1 $14,300 $8,550 $5,125
5/06/2003–
12/31/2003
32,030 2 14,600 8,750 5,225
1/01/2003–
5/05/2003
22,880 3 14,600 8,750 5,225
2002 22,980 4 14,700 8,750 5,325
2001 23,080 5 14,800 8,850 5,325
2000 9,280 14,800 8,850 5,325
1999 9,280 14,900 8,950 5,325
1998 9,380 15,000 8,950 5,425
1997 9,480 15,100 9,050 5,425
1If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $8,880.
2If you acquired the vehicle before 5/06/03, the maximum deduction is $22,880. If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $9,080.
3 If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $9,080.
4 If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $9,180.
5 If you acquired the vehicle before 9/11/01, you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $9,280.

For more information on electric vehicles, see chapter 12 of Publication 535.

Trucks and Vans

The maximum depreciation deductions for trucks and vans first placed in service in 2004 are higher than those for other passenger automobiles. This includes vehicles such as minivans and sport utility vehicles that are built on a truck chassis. The maximum deduction amounts for trucks and vans are shown in the following table.

Maximum Depreciation Deduction For Trucks and Vans

Date       4th &
Placed 1st 2nd 3rd Later
In Service Year Year Year Years
2004 $10,910 1 $5,300 $3,150 $1,875
5/06/2003–
12/31/2003
11,010 2 5,400 3,250 1,975
1/01/2003–
5/05/2003
7,960 3 5,400 3,250 1,975
1If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,260.
2 If you acquired the vehicle before 5/06/03, the maximum deduction is $7,960. If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,360.
3 If you elected not to claim any special depreciation allowance for the vehicle, the vehicle is not qualified property, or the vehicle is qualified Liberty Zone property, the maximum deduction is $3,360.

Depreciation Worksheet for Passenger Automobiles

You can use the following worksheet to figure your depreciation deduction using the percentage tables. Then use the information from this worksheet to prepare Form 4562.

Depreciation Worksheet for Passenger Automobiles

Part I
1. MACRS system (GDS or ADS)  
2. Property class  
3. Date placed in service  
4. Recovery period  
5. Method and convention  
6. Depreciation rate (from tables)  
7. Maximum depreciation deduction for this year from the appropriate table    
8. Business/investment-use percentage    
9. Multiply line 7 by line 8. This is your adjusted maximum depreciation deduction    
10. Section 179 deduction claimed this year (not more than line 9). Enter -0- if this is not the year you placed the car in service.    
  Note.
1) If line 10 is equal to line 9, stop here. Your combined section 179 and depreciation deduction (including your special depreciation allowance or Liberty Zone depreciation allowance) is limited to the amount on line 9.
2) If line 10 is less than line 9, complete Part II.
Part II
11. Subtract line 10 from line 9. This is the limit on the amount you can deduct for depreciation (including any special depreciation allowance or Liberty Zone depreciation allowance)    
12. Cost or other basis (reduced by any section 179A deduction 1 or credit for electric vehicles 2)    
13. Multiply line 12 by line 8. This is your business/investment cost    
14. Section 179 deduction claimed in the year you placed the car in service    
15. Subtract line 14 from line 13. This is your tentative basis for depreciation    
16. Multiply line 15 by .30 if the 30% special depreciation allowance (or Liberty Zone depreciation allowance) applies. Multiply line 15 by .50 if the 50% special depreciation allowance applies. This is your special depreciation allowance (or Liberty Zone depreciation allowance). Enter -0- if this is not the year you placed the car in service, the car is not qualified property (or Liberty Zone property), or you elected not to claim a special depreciation allowance (or Liberty Zone depreciation allowance).    
  Note.
1) If line 16 is equal to line 11, stop here. Your depreciation deduction (including your special depreciation allowance or Liberty Zone depreciation allowance) is limited to the amount on line 11.
2) If line 16 is less than line 11, complete Part III.
Part III
17. Subtract line 16 from line 11. This is the limit on the amount you can deduct for MACRS depreciation    
18. Subtract line 16 from line 15. This is your basis for depreciation    
19. Multiply line 18 by line 6. This is your tentative MACRS depreciation deduction    
20. Enter the lesser of line 17 or line 19. This is your MACRS depreciation deduction    
1The section 179A deduction is for clean-fuel vehicles or clean-fuel vehicle refueling property. When figuring the amount to enter on line 12, do not reduce your cost or other basis by any section 179 deduction you claimed for your car.
2Reduce the basis by the lesser of $4,000 or 10% of the cost of the vehicle even if the credit is less than that amount.

The following example shows how to figure your depreciation deduction using the worksheet.

Example.

On September 26, 2004, Donald Banks bought and placed in service a new car for $18,000. He used the car 60% for business during 2004. He files his tax return based on the calendar year. Under GDS, his car is 5-year property. Donald is electing a section 179 deduction of $1,000 on the car and claims the 50% special depreciation allowance. He uses Table A-1 to determine the depreciation rate. Donald's MACRS depreciation deduction is limited to $466, as shown in the following worksheet.

Depreciation Worksheet for Passenger Automobiles

Part I
1. MACRS system (GDS or ADS) GDS
2. Property class 5-year
3. Date placed in service 9/26/04
4. Recovery period 5-Year
5. Method and convention 200% DB/Half-Year
6. Depreciation rate (from tables) .20
7. Maximum depreciation deduction for this year from the appropriate table $10,610  
8. Business/investment-use percentage 60%  
9. Multiply line 7 by line 8. This is your adjusted maximum depreciation deduction   $6,366
10. Section 179 deduction claimed this year (not more than line 9). Enter -0- if this is not the year you placed the car in service.   $1,000
  Note.
1) If line 10 is equal to line 9, stop here. Your combined section 179 and depreciation deduction (including your special depreciation allowance or Liberty Zone depreciation allowance) is limited to the amount on line 9.
2) If line 10 is less than line 9, complete Part II.
Part II
11. Subtract line 10 from line 9. This is the limit on the amount you can deduct for depreciation (including any special depreciation allowance or Liberty Zone depreciation allowance)   $5,366
12. Cost or other basis (reduced by any section 179A deduction 1 or credit for electric vehicles 2) $18,000  
13. Multiply line 12 by line 8. This is your business/investment cost $10,800  
14. Section 179 deduction claimed in year you placed the car in service $1,000  
15. Subtract line 14 from line 13. This is your tentative basis for depreciation $9,800  
16. Multiply line 15 by .30 if the 30% special depreciation allowance (or Liberty Zone depreciation allowance) applies. Multiply line 15 by .50 if the 50% special depreciation allowance applies. This is your special depreciation allowance (or Liberty Zone depreciation allowance). Enter -0- if this is not the year you placed the car in service, the car is not qualified property (or Liberty Zone property), or you elected not to claim the special depreciation allowance (or Liberty Zone depreciation allowance)   $4,900
  Note.
1) If line 16 is equal to line 11, stop here. Your depreciation deduction (including your special depreciation allowance or Liberty Zone depreciation allowance) is limited to the amount on line 11.
2) If line 16 is less than line 11, complete Part III.
Part III
17. Subtract line 16 from line 11. This is the limit on the amount you can deduct for MACRS depreciation $466  
18. Subtract line 16 from line 15. This is your basis for depreciation $4,900  
19. Multiply line 18 by line 6. This is your tentative MACRS depreciation deduction   $980
20. Enter the lesser of line 17 or line 19. This is your MACRS depreciation deduction   $466
1The section 179A deduction is for clean-fuel vehicles or clean-fuel vehicle refueling property. When figuring the amount to enter on line 12, do not reduce your cost or other basis by any section 179 deduction you claimed for your car.
2Reduce the basis by the lesser of $4,000 or 10% of the cost of the vehicle even if the credit is less than that amount.

Deductions After the Recovery Period

If the depreciation deductions for your automobile are reduced under the passenger automobile limits, you will have unrecovered basis in your automobile at the end of the recovery period. If you continue to use the automobile for business, you can deduct that unrecovered basis after the recovery period ends. You can claim a depreciation deduction in each succeeding tax year until you recover your full basis in the car. The maximum amount you can deduct each year is determined by the date you placed the car in service and your business/investment-use percentage. See Maximum Depreciation Deduction, earlier.

Unrecovered basis is the cost or other basis of the passenger automobile reduced by any clean-fuel vehicle deduction, electric vehicle credit, depreciation, and section 179 deductions that would have been allowable if you had used the car 100% for business and investment use and the passenger automobile limits had not applied.

Caution
You cannot claim a depreciation deduction for listed property other than passenger automobiles after the recovery period ends. There is no unrecovered basis at the end of the recovery period because you are considered to have used this property 100% for business and investment purposes during all of the recovery period.

Example.

In May 1999, you bought and placed in service a car costing $30,000. The car was 5-year property under GDS (MACRS). You did not elect a section 179 deduction for the car. You used the car exclusively for business during the recovery period (1999 through 2004). You figured your depreciation as shown below.

Year Percentage Amount Limit   Allowed
1999 20.0% $6,000 $3,060   $3,060
2000 32.0 9,600 5,000   5,000
2001 19.2 5,760 2,950   2,950
2002 11.52 3,456 1,775   1,775
2003 11.52 3,456 1,775   1,775
2004 5.76 1,728 1,775   1,728
Total   $16,288

At the end of 2004, you had an unrecovered basis of $13,712 ($30,000 - $16,288). If in 2004 and later years you continue to use the car 100% for business, you can deduct each year the lesser of $1,775 or your remaining unrecovered basis.

If your business use of the car had been less than 100% during any year, your depreciation deduction would have been less than the maximum amount allowable for that year. However, in figuring your unrecovered basis in the car, you would still reduce your basis by the maximum amount allowable as if the business use had been 100%. For example, if you had used your car 60% for business instead of 100%, your allowable depreciation deductions would have been $9,773 ($16,288 × 60%), but you still would have to reduce your basis by $16,288 to determine your unrecovered basis.

Deductions For Passenger Automobiles Acquired in a Trade-in

If you acquire a passenger automobile in a trade-in, depreciate the carryover basis separately as if the trade-in did not occur. If the automobile acquired in the trade-in is qualified property (or qualified Liberty Zone property), the carryover basis is eligible for a special depreciation allowance (or Liberty Zone depreciation allowance). See What Is Qualified Property and What Is Qualified Liberty Zone Property in chapter 3. Depreciate the part of the new automobile's basis that exceeds its carryover basis (excess basis) as if it were newly placed in service property. This excess basis is the additional cash paid for the new automobile in the trade-in. See Property Acquired in a Like-kind Exchange or Involuntary Conversion in chapter 4 for more information including how to elect not to apply the rules above.

The depreciation figured for the 2 components of the basis (carryover basis and excess basis) is subject to a single passenger automobile limit. Special rules apply in determining the passenger automobile limits. These rules and examples are discussed in section 1.168(i)-6T(d)(3) of the regulations.

What Records Must Be Kept?

Terms you may need to know (see Glossary):

Business/investment use
Circumstantial evidence
Documentary evidence

You cannot take any depreciation or section 179 deduction for the use of listed property unless you can prove your business/investment use with adequate records or with sufficient evidence to support your own statements. The period of time you must keep these records is discussed later under How Long To Keep Records.

Adequate Records

Records you should keep
To meet the adequate records requirement, you must maintain an account book, diary, log, statement of expense, trip sheet, or similar record or other documentary evidence that, together with the receipt, is sufficient to establish each element of an expenditure or use. You do not have to record information in an account book, diary, or similar record if the information is already shown on the receipt. However, your records should back up your receipts in an orderly manner.

Elements of expenditure or use.   Your records or other documentary evidence must support all the following.
  • The amount of each separate expenditure, such as the cost of acquiring the item, maintenance and repair costs, capital improvement costs, lease payments, and any other expenses.

  • The amount of each business and investment use (based on an appropriate measure, such as mileage for vehicles and time for other listed property), and the total use of the property for the tax year.

  • The date of the expenditure or use.

  • The business or investment purpose for the expenditure or use.

  Written documents of your expenditure or use are generally better evidence than oral statements alone. A written record you prepare at or near the time of the expenditure or use has greater value as proof of the expenditure or use. You do not have to keep a daily log. However, some type of record containing the elements of an expenditure or the business or investment use of listed property made at or near the time and backed up by other documents is preferable to a statement you prepare later.

Timeliness.   You must record the elements of an expenditure or use at the time you have full knowledge of the elements. An expense account statement made from an account book, diary, or similar record prepared or maintained at or near the time of the expenditure or use generally is considered a timely record if, in the regular course of business:
  • The statement is given by an employee to the employer, or

  • The statement is given by an independent contractor to the client or customer.

  For example, a log maintained on a weekly basis, that accounts for use during the week, will be considered a record made at or near the time of use.

Business purpose supported.   Generally, an adequate record of business purpose must be in the form of a written statement. However, the amount of detail necessary to establish a business purpose depends on the facts and circumstances of each case. A written explanation of the business purpose will not be required if the purpose can be determined from the surrounding facts and circumstances. For example, a salesperson visiting customers on an established sales route will not normally need a written explanation of the business purpose of his or her travel.

Business use supported.   An adequate record contains enough information on each element of every business or investment use. The amount of detail required to support the use depends on the facts and circumstances. For example, a taxpayer who uses a truck for both business and personal purposes and whose only business use of the truck is to make customer deliveries on an established route can satisfy the requirement by recording the length of the route, including the total number of miles driven during the tax year and the date of each trip at or near the time of the trips.

  Although you generally must prepare an adequate written record, you can prepare a record of the business use of listed property using a computer memory device that uses a logging program.

Separate or combined expenditures or uses.   Each use by you normally is considered a separate use. However, you can combine repeated uses as a single item.

  Record each expenditure as a separate item. Do not combine it with other expenditures. If you choose, however, you can combine amounts you spent for the use of listed property during a tax year, such as for gasoline or automobile repairs. If you combine these expenses, you do not need to support the business purpose of each expense. Instead, you can divide the expenses based on the total business use of the listed property.

  You can account for uses that can be considered part of a single use, such as a round trip or uninterrupted business use, by a single record. For example, you can account for the use of a truck to make deliveries at several locations that begin and end at the business premises and can include a stop at the business in between deliveries by a single record of miles driven. You can account for the use of a passenger automobile by a salesperson for a business trip away from home over a period of time by a single record of miles traveled. Minimal personal use (such as a stop for lunch between two business stops) is not an interruption of business use.

Confidential information.   If any of the information on the elements of an expenditure or use is confidential, you do not need to include it in the account book or similar record if you record it at or near the time of the expenditure or use. You must keep it elsewhere and make it available as support to the IRS director for your area on request.

Substantial compliance.   If you have not fully supported a particular element of an expenditure or use, but have complied with the adequate records requirement for the expenditure or use to the satisfaction of the IRS director for your area, you can establish this element by any evidence the IRS director for your area deems adequate.

  If you fail to establish to the satisfaction of the IRS director for your area that you have substantially complied with the adequate records requirement for an element of an expenditure or use, you must establish the element as follows.
  • By your own oral or written statement containing detailed information as to the element.

  • By other evidence sufficient to establish the element.

  If the element is the cost or amount, time, place, or date of an expenditure or use, its supporting evidence must be direct evidence, such as oral testimony by witnesses or a written statement setting forth detailed information about the element or the documentary evidence. If the element is the business purpose of an expenditure, its supporting evidence can be circumstantial evidence.

Sampling.   You can maintain an adequate record for part of a tax year and use that record to support your business and investment use for the entire tax year if it can be shown by other evidence that the periods for which you maintain an adequate record are representative of use throughout the year.

Example 1.

Denise Williams, a sole proprietor and calendar year taxpayer, operates an interior decorating business out of her home. She uses her automobile for local business visits to the homes or offices of clients, for meetings with suppliers and subcontractors, and to pick up and deliver items to clients. There is no other business use of the automobile, but she and family members also use it for personal purposes. She maintains adequate records for the first three months of the year showing that 75% of the automobile use was for business. Subcontractor invoices and paid bills show that her business continued at approximately the same rate for the rest of the year. If there is no change in circumstances, such as the purchase of a second car for exclusive use in her business, the determination that her combined business/investment use of the automobile for the tax year is 75% rests on sufficient supporting evidence.

Example 2.

Assume the same facts as in Example 1, except that Denise maintains adequate records during the first week of every month showing that 75% of her use of the automobile is for business. Her business invoices show that her business continued at the same rate during the later weeks of each month so that her weekly records are representative of the automobile's business use throughout the month. The determination that her business/investment use of the automobile for the tax year is 75% rests on sufficient supporting evidence.

Example 3.

Bill Baker, a sole proprietor and calendar year taxpayer, is a salesman in a large metropolitan area for a company that manufactures household products. For the first three weeks of each month, he occasionally uses his own automobile for business travel within the metropolitan area. During these weeks, his business use of the automobile does not follow a consistent pattern. During the fourth week of each month, he delivers all business orders taken during the previous month. The business use of his automobile, as supported by adequate records, is 70% of its total use during that fourth week. The determination based on the record maintained during the fourth week of the month that his business/investment use of the automobile for the tax year is 70% does not rest on sufficient supporting evidence because his use during that week is not representative of use during other periods.

Loss of records.   When you establish that failure to produce adequate records is due to loss of the records through circumstances beyond your control, such as through fire, flood, earthquake, or other casualty, you have the right to support a deduction by reasonable reconstruction of your expenditures and use.

How Long To Keep Records

Records you should keep
For listed property, you must keep records for as long as any excess depreciation can be recaptured (included in income).

Recapture can occur in any tax year of the recovery period.

How Is Listed Property Information Reported?

Terms you may need to know (see Glossary):

Commuting
Standard mileage rate

You must provide the information about your listed property requested in Part V of Form 4562, Section A, if you claim either of the following deductions.

  • Any deduction for a vehicle.

  • A depreciation deduction for any other listed property.

If you claim any deduction for a vehicle, you also must provide the information requested in Section B. (If you provide the vehicle for your employee's use, the employee must give you this information.) If you provide any vehicle for use by an employee, you must first answer the questions in Section C to see if you meet an exception to completing Section B for that vehicle.

Vehicles used by your employees.   You do not have to complete Section B, Part V, for vehicles used by your employees who are not more-than-5% owners or related persons if you meet at least one of the following requirements.
  1. You maintain a written policy statement that prohibits one of the following uses of the vehicles.

    1. All personal use including commuting.

    2. Personal use, other than commuting, by employees who are not officers, directors, or 1%-or-more owners.

  2. You treat all use of the vehicles by your employees as personal use.

  3. You provide more than 5 vehicles for use by your employees, and you keep the information on their use given to you by the employees in your records.

  4. For demonstrator automobiles provided to full-time salespersons, you maintain a written policy statement that limits the total mileage outside the salesperson's normal working hours and prohibits use of the automobile by anyone else, for vacation trips, or to store personal possessions.

Exceptions.   If you file Form 2106, 2106-EZ, or Schedule C-EZ (Form 1040), report information about listed property on that form and not on Form 4562. Also, if you file Schedule C (Form 1040) and are claiming the standard mileage rate or actual vehicle expenses (except depreciation) and you are not required to file Form 4562 for any other reason, report vehicle information in Part IV of Schedule C and not on Form 4562.

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