Generally, the maximum section 179 deduction is $108,000.

For an enterprise zone business or a renewal community business, the maximum deduction is increased by the smaller of:

For qualified Liberty Zone property, the maximum deduction is increased by the smaller of:

For qualified section 179 GO Zone property, the maximum deduction is increased by the smaller of:

If applicable, cross out the preprinted entry on line 1 and enter in the right margin the larger amount. For more information, including definitions of qualified empowerment zone property and qualified renewal property, see Pub. 954, Tax Incentives for Distressed Communities. For more information, including definitions of qualified Liberty Zone property, qualified GO Zone property, and qualified section 179 GO Zone property, see Pub. 946.

Enter the cost of all section 179 property placed in service during the tax year. Also include the cost of the following.

The amount of section 179 property for which you can make the election is limited to the maximum dollar amount on line 1. In most cases, this amount is reduced if the cost of all section 179 property placed in service during the year is more than $430,000.

However, if you placed qualified section 179 GO Zone property in service during the tax year, the amount of property for which you can make the election is reduced if the cost of all section 179 property placed in service during the year exceeds $430,000 increased by the smaller of:

If applicable, cross out the preprinted entry on line 3 and enter in the right margin the higher amount.

For a partnership (other than an electing large partnership) these limitations apply to the partnership and each partner. For an electing large partnership, the limitations apply only to the partnership. For an S corporation, these limitations apply to the S corporation and each shareholder. For a controlled group, all component members are treated as one taxpayer.

If line 5 is zero, you cannot elect to expense any section 179 property. In this case, skip lines 6 through 11, enter zero on line 12, and enter the carryover of any disallowed deduction from 2005 on line 13.

If you are married filing separately, you and your spouse must allocate the dollar limitation for the tax year. To do so, multiply the total limitation that you would otherwise enter on line 5 by 50%, unless you both elect a different allocation. If you both elect a different allocation, multiply the total limitation by the percentage elected. The sum of the percentages you and your spouse elect must equal 100%.

Do not enter on line 5 more than your share of the total dollar limitation.

Do not include any listed property on line 6. Enter the elected section 179 cost of listed property in column (i) of line 26.

The carryover of disallowed deduction from 2005 is the amount of section 179 property, if any, you elected to expense in previous years that was not allowed as a deduction because of the business income limitation. If you filed Form 4562 for 2005, enter the amount from line 13 of your 2005 Form 4562.

The total cost you can deduct is limited to your taxable income from the active conduct of a trade or business during the year. You are considered to actively conduct a trade or business only if you meaningfully participate in its management or operations. A mere passive investor is not considered to actively conduct a trade or business.

The limitations on lines 5 and 11 apply to the taxpayer, and not to each separate business or activity. Therefore, if you have more than one business or activity, you may allocate your allowable section 179 expense deduction among them.

To do so, write “Summary” at the top of Part I of the separate Form 4562 you are completing for the total amounts from all businesses or activities. Do not complete the rest of that form. On line 12 of the Form 4562 you prepare for each separate business or activity, enter the amount allocated to the business or activity from the “Summary.” No other entry is required in Part I of the separate Form 4562 prepared for each business or activity.

For qualified property (defined below) placed in service during the tax year, you may be able to take an additional 50% (or 30%, if applicable) special depreciation allowance. The special allowance applies only for the first year the property is placed in service. The allowance is an additional deduction you can take after any section 179 expense deduction and before you figure regular depreciation under MACRS.

In addition, qualified GO Zone property does not include:

See Pub. 946 for additional information.

Report on this line depreciation for property that you elect to depreciate under the unit-of-production method or any other method not based on a term of years (other than the retirement-
replacement-betterment method).

Attach a separate sheet showing:

For additional credits and deductions that may affect the depreciable basis, see section 1016. Also, see section 50(c) to determine the basis adjustment for investment credit property.

Enter the total depreciation you are claiming for the following types of property (except listed property and property subject to a section 168(f)(1) election).

For tangible property placed in service in tax years beginning before 2006 and depreciated under MACRS, enter the deductions for the current year. To figure the deductions, see the instructions for line 19, column (g).

To simplify the computation of MACRS depreciation, you can elect to group assets into one or more general asset accounts. The assets in each general asset account are depreciated as a single asset.

Each general asset account must include only assets that were placed in service during the same tax year with the same asset class (if any), depreciation method, recovery period, and convention. However, an asset cannot be included in a general asset account if the asset is used both for personal purposes and business/investment purposes.

When an asset in an account is disposed of, the amount realized generally must be recognized as ordinary income. The unadjusted depreciable basis and depreciation reserve of the general asset account are not affected as a result of a disposition.

Special rules apply to passenger automobiles, assets generating foreign source income, assets converted to personal use, certain asset dispositions, and like-kind exchanges or involuntary conversions of property in a general asset account. For more details, see Regulations section 1.168(i)-1 and Temporary Regulations section 1.168(i)-1T.

To make the election, check the box on line 18. You must make the election on your return filed no later than the due date (including extensions) for the tax year in which the assets included in the general asset account were placed in service. Once made, the election is irrevocable and applies to the tax year for which the election is made and all later tax years.

For more information on depreciating property in a general asset account, see Pub. 946.

Use lines 19a through 19i only for assets placed in service during the tax year beginning in 2006 and depreciated under the General Depreciation System (GDS), except for automobiles and other listed property (which are reported in Part V).

Complete lines 20a through 20c for assets, other than automobiles and other listed property, placed in service only during the tax year beginning in 2006 and depreciated under the Alternative Depreciation System (ADS). Report on line 17 MACRS depreciation on assets placed in service in prior years.

Under ADS, use the applicable depreciation method, the applicable recovery period, and the applicable convention to compute depreciation.

The following types of property must be depreciated under ADS.

Instead of depreciating property under GDS (line 19), you can make an irrevocable election with respect to any classification of property for any tax year to use ADS. For residential rental and nonresidential real property, you can make this election separately for each property.

A partnership (other than an electing large partnership) or S corporation does not include any section 179 expense deduction (line 12) on this line. Instead, any section 179 expense deduction is passed through separately to the partners and shareholders on the appropriate line of their Schedules K-1.

If you are subject to the uniform capitalization rules of section 263A, enter the increase in basis from costs you must capitalize. For a detailed discussion of who is subject to these rules, which costs must be capitalized, and allocation of costs among activities, see Regulations section 1.263A-1.

Listed property used 50% or less in a qualified business use (as defined in the instructions for lines 26 and 27 below) does not qualify for the section 179 expense deduction or special depreciation allowance.

If you placed certain aircraft or certain property with a long production period in service in the GO Zone, the Rita GO Zone, or the Wilma GO Zone before January 1, 2007, or placed in service qualified Liberty Zone property or qualified GO Zone property during the tax year, you may be able to deduct an additional special depreciation allowance. See the instructions for line 14 for the definition of qualified property and how to figure the deduction. This special depreciation allowance is included in the overall limit on depreciation and section 179 expense deduction for passenger automobiles. Enter on line 25 your total special depreciation allowance for all qualified listed property.

Use line 26 to figure depreciation for property used more than 50% in a qualified business use. Use line 27 to figure the depreciation for property used 50% or less in a qualified business use. Also see Limits for passenger automobiles on page 9.

Determine your percentage of qualified business use similar to the method used to figure the business/investment use percentage in column (c). Your percentage of qualified business use may be smaller than the business/investment use percentage.

For more information, including the definition of 5% owner and related person and exceptions, see Pub. 946.

Except as noted below, you must complete lines 30 through 36 for each vehicle identified in Section A. Employees must provide their employers with the information requested on lines 30 through 36 for each automobile or vehicle provided for their use.

Employers providing vehicles to their employees satisfy the employer's substantiation requirements under section 274(d) by maintaining a written policy statement that:

An employee does not need to keep a separate set of records for any vehicle that satisfies these written policy statement rules.

For both written policy statements, there must be evidence that would enable the IRS to determine whether use of the vehicle meets the conditions stated below.

A policy statement that prohibits personal use (including commuting) must meet all of the following conditions.

A policy statement that prohibits personal use (except for commuting) is not available if the commuting employee is an officer, director, or 1% or more owner. This policy must meet all of the following conditions.

An employer that provides more than five vehicles to its employees who are not 5% owners or related persons need not complete Section B for such vehicles. Instead, the employer must obtain the information from its employees and retain the information received.

An automobile meets the requirements for qualified demonstration use if the employer maintains a written policy statement that:

Complete line 42 only for those costs you elect to amortize for which the amortization period begins during your tax year beginning in 2006.

Column (a) — Description of costs.   Describe the costs you are amortizing. You can elect to amortize the following.

Geological and geophysical expenditures (section 167(h)).   You can amortize geological and geophysical expenses paid or incurred in connection with the exploration or development of oil and gas within the U.S. ratably over a 24-month period (a 5-year period in the case of a major integrated oil company for costs paid or incurred after May 17, 2006) beginning on the mid-point of the tax year in which the expenses were paid or incurred. See section 167(h).

Pollution control facilities (section 169).   You can elect to amortize the cost of a certified pollution control facility over a 60-month period (84 months for certain atmospheric pollution control facilities placed in service after April 11, 2005). See section 169 and the related regulations for details and information required in making the election. See Pub. 535 for more information.

  

You can deduct a special depreciation allowance on a certified pollution control facility that is qualified property. However, you must reduce the amount on which you figure your amortization deduction by any special allowance allowed or allowable, whichever is greater.

  Also, a corporation must reduce its amortizable basis of a pollution control facility by 20% before figuring the amortization deduction.

Certain bond premiums (section 171).   For individuals reporting amortization of bond premium for bonds acquired before October 23, 1986, do not report the deduction here. See the instructions for Schedule A (Form 1040), line 27.

  For taxpayers (other than corporations) claiming a deduction for amortization of bond premium for bonds acquired after October 22, 1986, but before January 1, 1988, the deduction is treated as interest expense and is subject to the investment interest limitations. Use Form 4952, Investment Interest Expense Deduction, to compute the allowable deduction.

  For taxable bonds acquired after 1987, you can elect to amortize the bond premium over the life of the bond. See section 171 and Regulations section 1.171-4 for more information. Individuals, also see Pub. 550, Investment Income and Expenses.

Research and experimental expenditures (section 174).   You can elect to either amortize your research and experimental costs, deduct them as current business expenses, or write them off over a 10-year period. If you elect to amortize these costs, deduct them in equal amounts over 60 months or more. For more information, see Pub. 535.

The cost of acquiring a lease (section 178).   Amortize these costs over the term of the lease. For more information, see Pub. 535.

Qualified forestation and reforestation costs (section 194).   You can elect to deduct a limited amount of qualifying reforestation costs paid or incurred during the tax year for each qualified timber property. You can elect to amortize the qualifying costs that are not deducted currently over an 84-month period. There is no limit on the amount of your amortization deduction for reforestation costs paid or incurred during the tax year.

  If you are otherwise required to file Form T (Timber), Forest Activities Schedule, you can make the election to amortize qualifying reforestation costs by completing Part IV of the form. See the instructions for Form T for more information.

  See Pub. 535 for more information on amortizing reforestation costs. Partnerships and S corporations, also see the instructions for line 44.

Qualified revitalization expenditures (section 1400l).   These amounts are certain capital expenditures that relate to a qualified revitalization building located in an area designated as a renewal community. The amount of qualified revitalization expenditures cannot exceed the commercial revitalization expenditure amount allocated to the qualified revitalization building by the commercial revitalization agency for the state in which the building is located.

  You can elect to either (a) deduct one-half of the expenditures for the year the building is placed in service or (b) amortize all such expenditures ratably over the 120-month period beginning with the month the building is placed in service. Report any amortization on line 42. Report any deductions on the applicable “Other Deductions” or “Other Expenses” line of your return. This deduction is treated as depreciation for purposes of basis adjustments and ordinary income recapture upon disposition.

Optional write-off of certain tax preferences over the period specified in section 59(e).   You can elect to amortize certain tax preference items over an optional period. If you make this election, there is no AMT adjustment for these expenditures. The applicable expenditures and the optional recovery periods are as follows:

• Circulation expenditures (section 173) — 3 years,

• Intangible drilling and development costs (section 263(c)) — 60 months, and

• Research and experimental expenditures (section 174(a)), mining exploration and development costs (sections 616(a) and 617(a)) — 10 years.

  For information on making the election, see Regulations section 1.59-1. Also see Pub. 535.

Certain section 197 intangibles.   The following costs must be amortized over 15 years (180 months) starting with the later of (a) the month the intangibles were acquired or (b) the month the trade or business or activity engaged in for the production of income begins:

• Goodwill;

• Going concern value;

• Workforce in place;

• Business books and records, operating systems, or any other information base;

• A patent, copyright, formula, process, design, pattern, know-how, format, or similar item;

• A customer-based intangible (e.g., composition of market or market share);

• A supplier-based intangible;

• A license, permit, or other right granted by a governmental unit;

• A covenant not to compete entered into in connection with the acquisition of a business; and

• A franchise, trademark, or trade name (including renewals).

  A longer period may apply to section 197 intangibles leased under a lease agreement entered into after March 12, 2004, to a tax-exempt organization, governmental unit, or foreign person or entity (other than a partnership). See section 197(f)(10).

  

A section 197 intangible is treated as depreciable property used in your trade or business. When you dispose of a section 197 intangible, any gain on the disposition, up to the amount of allowable amortization, is recaptured as ordinary income. If multiple section 197 intangibles are disposed of in a single transaction or a series of related transactions, calculate the recapture as if all of the section 197 intangibles were a single asset.

  For more details on section 197 intangibles, see Pub. 535.

Start-up and organizational costs.   You can elect to amortize the following costs for setting up your business.

• Business start-up costs (section 195).

• Organizational costs for a corporation (section 248).

• Organizational costs for a partnership (section 709).

  For costs paid or incurred before October 23, 2004, you can elect an amortization period of 60 months or more. For costs paid or incurred after October 22, 2004, you can elect to deduct a limited amount of start-up or organizational costs. The costs that are not deducted currently can be amortized ratably over a 180-month period. The amortization period starts with the month you begin business operations.

  Attach the statement required by the appropriate Code section and related regulations. If you have both start-up and organizational costs, attach a separate statement for each type of cost. See Pub. 535 for more details.

   The statements required to make the elections must be attached to Form 4562 and filed by the due date, including extensions, of your return for the year in which the active trade or business begins. If you timely filed that return without making the election, you can still make the election on an amended return filed within 6 months of the due date, excluding extensions, of that return. Write “Filed pursuant to section 301.9100-2” on the amended return.

Creative property costs.   These are costs paid or incurred to acquire and develop screenplays, scripts, story outlines, motion picture production rights to books and plays, and other similar properties for purposes of potential future film development, production, and exploitation. You may be able to amortize creative property costs for properties not set for production within 3 years of the first capitalized transaction. These costs are amortized ratably over a 15-year period under the rules of Rev. Proc. 2004-36, 2004-24 I.R.B. 1063.

If you are reporting the amortization of costs that began before your 2006 tax year and you are not required to file Form 4562 for any other reason, do not file Form 4562. Report the amortization directly on the “Other Deductions” or “Other Expenses” line of your return.

Report the total amortization, including the allowable portion of forestation or reforestation amortization, on the applicable “Other Deductions” or “Other Expenses” line of your return. For more details, including limitations that apply, see Pub. 535. Partnerships (other than electing large partnerships) and S corporations, report the amortizable basis of any forestation or reforestation expenses for which amortization is elected and the year in which the amortization begins as a separately stated item on Schedules K and K-1 (Form 1065 or 1120S). See the instructions for Schedule K (Form 1065 or 1120S) for more details on how to report.