U.S. Individual Income Tax Return

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Instructions for Form 4562

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2008

Department of the Treasury
Internal Revenue Service

Instructions for Form 4562
Depreciation and Amortization (Including Information on Listed Property)
Section references are to the Internal
Revenue Code unless otherwise noted.

What’s New

• For tax years beginning in 2008, the
maximum section 179 expense deduction is
$250,000 ($285,000 for qualified enterprise
zone and renewal community property). This
limit is reduced by the amount by which the
cost of section 179 property placed in
service during the tax year exceeds
$800,000. See the instructions for Part I.
• The higher maximum deduction for
certain qualified section 179 Gulf
Opportunity Zone (GO Zone) property will
not apply to property placed in service after
December 31, 2008. See the instructions for
line 1.
• You may be able to claim an increased
section 179 expense deduction and the
special depreciation allowance for qualified
property placed in service in the Kansas
disaster area. See Pub. 4492-A, Information
for Taxpayers Affected by the May 4, 2007,
Kansas Storms and Tornadoes.
• You may be able to claim an increased
section 179 expense deduction for qualified
section 179 disaster assistance property
placed in service after December 31, 2007.
See the instructions for line 1.
• You may be able to claim a 50% special
depreciation allowance for property that is
(a) qualified cellulosic biofuel plant property
placed in service after October 3, 2008, (b)
certain qualified property acquired after
December 31, 2007, and placed in service
before January 1, 2009, (c) qualified reuse
and recycling property placed in service
after August 31, 2008, and (d) qualified
disaster assistance property placed in
service after December 31, 2007. See the
instructions for lines 14 and 25 for more
information.
• Qualified restaurant property and retail
improvement property placed in service after
December 31, 2008, will not be treated as
qualified property for purposes of the special
depreciation allowance. See the instructions
for line 14.
• Corporations and a certain automotive
partnership may elect to accelerate research
and minimum tax credits in lieu of claiming
the special depreciation allowance for
certain property under section 168(k). For
more information, see the instructions for
line 14.
• The special depreciation allowance has
been extended for certain qualified GO Zone
property. See the instructions for lines 14
and 25 for more details.

• The accelerated depreciation of property
on an Indian reservation has been extended
to include property placed in service before
January 1, 2010. See the instructions for
line 19, column (d).

• The treatment of a qualified motorsports
entertainment complex property as 7-year
property has been extended to include
property placed in service before January 1,
2010. See the instructions for line 19,
column (a).
• Any race horse (without regard to the age
of the horse) placed in service after
December 31, 2008, is treated as 3-year
property. See the instructions for line 19,
column (a).
• Any qualified smart electric meter and
qualified smart electric grid system property
placed in service after October 3, 2008, is
considered 10-year property. See the
instructions for line 19, column (a).
• Treatment of qualified leasehold
improvement property and qualified
restaurant property as 15-year property has
been extended to include property placed in
service before January 1, 2010. See the
instructions for line 19, column (a).
• Certain qualified retail improvement
property placed in service after December
31, 2008, will be treated as 15-year
property. See the instructions for line 19,
column (a).

• Certain machinery or equipment used in a
farming business where the original use of
the property begins with you after December
31, 2008, will be treated as 5-year property.
See the instructions for line 19, column (a).

• You are no longer required to attach a
statement to your return to make an election
to deduct business start-up and
organizational costs paid or incurred after
September 8, 2008. See the instructions for
line 42 for more information.

General Instructions
Purpose of Form
Use Form 4562 to:

• Claim your deduction for depreciation and
amortization,

• Make the election under section 179 to
expense certain property, and

• Provide information on the business/
investment use of automobiles and other
listed property.
Cat. No. 12907Y

Who Must File
Except as otherwise noted, complete and
file Form 4562 if you are claiming any of the
following.
• Depreciation for property placed in
service during the 2008 tax year.
• A section 179 expense deduction (which
may include a carryover from a previous
year).
• Depreciation on any vehicle or other listed
property (regardless of when it was placed
in service).
• A deduction for any vehicle reported on a
form other than Schedule C (Form 1040),
Profit or Loss From Business, or Schedule
C-EZ (Form 1040), Net Profit From
Business.
• Any depreciation on a corporate income
tax return (other than Form 1120S).
• Amortization of costs that begins during
the 2008 tax year.
If you are an employee deducting
job-related vehicle expenses using either
the standard mileage rate or actual
expenses, use Form 2106, Employee
Business Expenses, or Form 2106-EZ,
Unreimbursed Employee Business
Expenses, for this purpose.
File a separate Form 4562 for each
business or activity on your return for which
Form 4562 is required. If you need more
space, attach additional sheets. However,
complete only one Part I in its entirety when
computing your section 179 expense
deduction. See the instructions for line 12 on
page 4.

Additional Information
For more information about depreciation and
amortization (including information on listed
property) see the following.
• Pub. 463, Travel, Entertainment, Gift, and
Car Expenses.
• Pub. 534, Depreciating Property Placed in
Service Before 1987.
• Pub. 535, Business Expenses.
• Pub. 553, Highlights of 2008 Tax
Changes.
• Pub. 551, Basis of Assets.
• Pub. 946, How To Depreciate Property.

Definitions
Depreciation
Depreciation is the annual deduction that
allows you to recover the cost or other basis
of your business or investment property over
a certain number of years. Depreciation
starts when you first use the property in your

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business or for the production of income. It
ends when you either take the property out
of service, deduct all your depreciable cost
or basis, or no longer use the property in
your business or for the production of
income.
Generally, you can depreciate:

• Tangible property such as buildings,
machinery, vehicles, furniture, and
equipment; and
• Intangible property such as patents,
copyrights, and computer software.
Exception. You cannot depreciate land.

Section 179 Property
Section 179 property is property that you
acquire by purchase for use in the active
conduct of your trade or business, and is
one of the following.
• Tangible personal property.
• Other tangible property (except buildings
and their structural components) used as:
1. An integral part of manufacturing,
production, or extraction or of furnishing
transportation, communications, electricity,
gas, water, or sewage disposal services;
2. A research facility used in connection
with any of the activities in (1) above; or
3. A facility used in connection with any
of the activities in (1) above for the bulk
storage of fungible commodities.
• Single purpose agricultural (livestock) or
horticultural structures.
• Storage facilities (except buildings and
their structural components) used in
connection with distributing petroleum or
any primary product of petroleum.
• Off-the-shelf computer software.
Section 179 property does not include
the following.
• Property held for investment (section 212
property).
• Property used mainly outside the United
States (except for property described in
section 168(g)(4)).
• Property used mainly to furnish lodging or
in connection with the furnishing of lodging
(except as provided in section 50(b)(2)).
• Property used by a tax-exempt
organization (other than a section 521
farmers’ cooperative) unless the property is
used mainly in a taxable unrelated trade or
business.
• Property used by a governmental unit or
foreign person or entity (except for property
used under a lease with a term of less than
6 months).
• Air conditioning or heating units.
See the instructions for Part I and Pub.
946.

Amortization
Amortization is similar to the straight line
method of depreciation in that an annual
deduction is allowed to recover certain costs
over a fixed time period. You can amortize
such items as the costs of starting a
business, goodwill, and certain other
intangibles. See the instructions for Part VI.

Listed Property
Listed property generally includes the
following.
• Passenger automobiles weighing 6,000
pounds or less. See Limits for passenger
automobiles on page 12.
• Any other property used for transportation
if the nature of the property lends itself to
personal use, such as motorcycles, pick-up
trucks, sport utility vehicles, etc.
• Any property used for entertainment or
recreational purposes (such as
photographic, phonographic,
communication, and video recording
equipment).
• Cellular telephones (or other similar
telecommunications equipment).
• Computers or peripheral equipment.
Exceptions. Listed property does not
include:
1. Photographic, phonographic,
communication, or video equipment used
exclusively in a taxpayer’s trade or business
or at the taxpayer’s regular business
establishment;
2. Any computer or peripheral
equipment used exclusively at a regular
business establishment and owned or
leased by the person operating the
establishment; or
3. An ambulance, hearse, or vehicle
used for transporting persons or property for
compensation or hire.
4. Any truck or van placed in service
after July 6, 2003, that is a qualified
nonpersonal use vehicle.
For purposes of the exceptions above, a
portion of the taxpayer’s home is treated as
a regular business establishment only if that
portion meets the requirements for
deducting expenses attributable to the
business use of a home. However, for any
property listed in (1) above, the regular
business establishment of an employee is
his or her employer’s regular business
establishment.

Commuting
Generally, commuting is defined as travel
between your home and a work location.
However, travel that meets any of the
following conditions is not commuting.
• You have at least one regular work
location away from your home and the travel
is to a temporary work location in the same
trade or business, regardless of the
distance. Generally, a temporary work
location is one where your employment is
expected to last 1 year or less. See Pub.
463 for details.
• The travel is to a temporary work location
outside the metropolitan area where you live
and normally work.
• Your home is your principal place of
business for purposes of deducting
expenses for business use of your home
and the travel is to another work location in
the same trade or business, regardless of
whether that location is regular or temporary
and regardless of distance.

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Alternative Minimum Tax
(AMT)
Depreciation may be an adjustment for the
AMT. However, no adjustment applies in
several instances. See Form 4626,
Alternative Minimum Tax — Corporations;
Form 6251, Alternative Minimum
Tax — Individuals; Schedule I (Form 1041),
Alternative Minimum Tax — Estates and
Trusts; and the related instructions.

Recordkeeping
Except for Part V (relating to listed property),
the IRS does not require you to submit
detailed information with your return on the
depreciation of assets placed in service in
previous tax years. However, the
information needed to compute your
depreciation deduction (basis, method, etc.)
must be part of your permanent records.
You may use the depreciation

TIP worksheet on page 18 to assist you
in maintaining depreciation records.
However, the worksheet is designed only for
federal income tax purposes. You may need
to keep additional records for accounting
and state income tax purposes.

Specific Instructions
Part I. Election To Expense
Certain Property Under
Section 179
Note. An estate or trust cannot make this
election.
You can elect to expense part or all of
the cost of section 179 property (defined
earlier) that you placed in service during the
tax year and used predominantly (more than
50%) in your trade or business.
However, for taxpayers other than a
corporation, this election does not apply to
any section 179 property you purchased and
leased to others unless:
• You manufactured or produced the
property or
• The term of the lease is less than 50% of
the property’s class life and, for the first 12
months after the property is transferred to
the lessee, the deductions related to the
property allowed to you as trade or business
expenses (except rents and reimbursed
amounts) are more than 15% of the rental
income from the property.
Election. You must make the election on
Form 4562 filed with either:
• The original return you file for the tax year
the property was placed in service (whether
or not you file your return on time) or
• An amended return filed within the time
prescribed by law for the applicable tax
year. The election made on an amended
return must specify the item of section 179
property to which the election applies and
the part of the cost of each such item to be

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taken into account. The amended return
must also include any resulting adjustments
to taxable income.
Revocation. The election (or any
specification made in the election) can be
revoked without obtaining IRS approval by
filing an amended return. The amended
return must be filed within the time
prescribed by law for the applicable tax
year. The amended return must include any
resulting adjustments to taxable income or
to the tax liability (for example, allowable
depreciation in that tax year for the item of
section 179 property which the revocation
pertains). For more information and
examples, see Regulations section 1.179-5.
Once made, the revocation is
irrevocable.
If you elect to expense section 179
property, you must reduce the
CAUTION amount on which you figure your
depreciation or amortization deduction
(including any special depreciation
allowance) by the section 179 expense
deduction.

!

Line 1
Generally, the maximum section 179
deduction is $250,000.
For an enterprise zone business or a
renewal community business, the maximum
deduction is increased by the smaller of:
• $35,000 or
• The cost of section 179 property that is
also qualified empowerment zone property
or qualified renewal property (including such
property placed in service by your spouse,
even if you are filing a separate return).
For more information, including
definitions of qualified empowerment zone
property and qualified renewal property, see
Pub. 954, Tax Incentives for Distressed
Communities.
For certain qualified section 179 GO
Zone property in which substantially all of
the use is in one or more specified portions
of the GO Zone (as defined in section
1400N(d)(6)), the maximum deduction is
increased by the smaller of:
• $100,000 or
• The cost of certain qualified section 179
GO Zone property placed in service before
January 1, 2009 (including such property
placed in service by your spouse, even if
you are filing a separate return). See section
1400N(e) for more information.
For all other section 179 GO Zone
property placed in service in tax years
beginning in 2008, the maximum deduction
is $250,000.
For more information, including
definitions of qualified GO Zone property
and qualified section 179 GO Zone property,
see Pub. 946.
For qualified section 179 disaster
assistance property placed in service in a
federally declared area in which the disaster
occurred after December 31, 2007, the
maximum deduction is increased by the
smaller of:

• $100,000 or
• The cost of qualified section 179 disaster
assistance property placed in service after
2007 (including such property placed in
service by your spouse, even if you are filing
a separate return).
A list of the federally declared disaster
areas is available at the Federal Emergency
Management Agency (FEMA) web site at
www.fema.gov. For more information,
including the definition of qualified section
179 disaster assistance property and the
eligible disaster areas, see Pub. 946.
You may be able to take an

TIP increased section 179 expense
deduction for qualified section 179
Recovery Assistance property placed in
service in the Kansas disaster area. For
more information, including definitions of
qualified Recovery Assistance property and
qualified section 179 Recovery Assistance
property, see Pub. 4492-A.
If applicable, cross out the preprinted
entry on line 1 and enter in the right margin
the larger amount.
For purposes of the increased
section 179 expense deduction,
CAUTION certain qualified section 179 GO
Zone property, qualified section 179
Recovery Assistance property, or qualified
section 179 disaster assistance property
that is located in an empowerment zone (or
a renewal community) is treated as qualified
empowerment zone property (or qualified
renewable property) only if you elect not to
treat the property as qualified section 179
GO Zone property, qualified section 179
Recovery Assistance property, or qualified
section 179 disaster assistance property.
Recapture rule. If any qualified
empowerment zone property (or qualified
renewal property) placed in service during
the current year ceases to be used in an
empowerment zone (or a renewal
community) by an enterprise zone business
(or a renewal community business) in a later
year, the benefit of the increased section
179 expense deduction must be reported as
“other income” on your return. Similar rules
apply to qualified Liberty Zone property that
ceases to be used in the Liberty Zone,
qualified section 179 GO Zone property that
ceases to be used in the GO Zone, qualified
section 179 Recovery Assistance property
that ceases to be used in the Recovery
Assistance area, and qualified section 179
disaster assistance property that ceases to
be used in the applicable federally declared
disaster area.

!

Line 3
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
$800,000.
However, if you placed certain qualified
section 179 GO Zone property in service
during the tax year and substantially all of
the use of the property is in one or more
specified portions of the GO Zone (as
defined in section 1400N(d)(6)), 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 $800,000 increased by the
smaller of:
• $600,000 or
• The cost of certain qualified section 179
GO Zone property placed in service during
the tax year.
Note. For all other qualified section 179
GO Zone property placed in service in tax
years beginning in 2008, the maximum
limitation is $800,000.
If you placed qualified section 179
disaster assistance property in service in a
federally declared disaster area in which the
disaster occurred after December 31, 2007,
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 $800,000 increased
by the smaller of:
• $600,000 or
• The cost of qualified section 179 disaster
assistance property placed in service after
December 31, 2007.
For more information. see Pub. 946.
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.

Line 5

Line 2

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 2007 on line 13.

Enter the cost of all section 179 property
placed in service during the tax year. Also
include the cost of the following.
• Any listed property from Part V.
• Any property placed in service by your
spouse, even if you are filing a separate
return.
• 50% of the cost of section 179 property
that is also qualified empowerment zone
property or qualified renewal property.

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%.

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

Line 6
Do not include any listed property on line 6.
Enter the elected section 179 cost of listed
property in column (i) of line 26.
Column (a) — Description of property.
Enter a brief description of the property you
elect to expense (e.g., truck, office furniture,
etc.).
Column (b) — Cost (business use only).
Enter the cost of the property. If you
acquired the property through a trade-in, do
not include any carryover basis of the
property traded in. Include only the excess
of the cost of the property over the value of
the property traded in.
Column (c) — Elected cost. Enter the
amount you elect to expense. You do not
have to expense the entire cost of the
property. You can depreciate the amount
you do not expense. See the line 19 and line
20 instructions.
To report your share of a section 179
expense deduction from a partnership or an
S corporation, write “from Schedule K-1
(Form 1065)” or “from Schedule K-1 (Form
1120S)” across columns (a) and (b).

Line 10
The carryover of disallowed deduction from
2007 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 2007, enter the
amount from line 13 of your 2007 Form
4562.

Line 11
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.
Note. If you have to apply another Code
section that has a limitation based on
taxable income, see Pub. 946 for rules on
how to apply the business income limitation
for the section 179 expense deduction.
Individuals. Enter the smaller of line 5 or
the total taxable income from any trade or
business you actively conducted, computed
without regard to any section 179 expense
deduction, the deduction for one-half of
self-employment taxes under section 164(f),
or any net operating loss deduction. Also
include all wages, salaries, tips, and other
compensation you earned as an employee
(from Form 1040, line 7). Do not reduce this
amount by unreimbursed employee
business expenses. If you are married filing
a joint return, combine the total taxable
incomes for you and your spouse.
Partnerships. Enter the smaller of line 5 or
the partnership’s total items of income and
expense described in section 702(a) from

any trade or business the partnership
actively conducted (other than credits,
tax-exempt income, the section 179
expense deduction, and guaranteed
payments under section 707(c)).
S corporations. Enter the smaller of line 5
or the corporation’s total items of income
and expense described in section 1366(a)
from any trade or business the corporation
actively conducted (other than credits,
tax-exempt income, the section 179
expense deduction, and the deduction for
compensation paid to the corporation’s
shareholder-employees).
Corporations other than S corporations.
Enter the smaller of line 5 or the
corporation’s taxable income before the
section 179 expense deduction, net
operating loss deduction, and special
deductions (excluding items not derived
from a trade or business actively conducted
by the corporation).

Line 12
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.

Part II. Special
Depreciation Allowance
and Other Depreciation
Line 14
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 depreciation
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
the modified accelerated cost recovery
system (MACRS).
Qualified property. You can take the
special depreciation allowance for qualified
New York Liberty Zone (Liberty Zone)
property (other than qualified Liberty Zone
leasehold improvement property), qualified
GO Zone property, qualified cellulosic
biomass ethanol plant property, qualified
Recovery Assistance property, qualified
reuse and recycling property placed into
service after August 31, 2008, qualified
cellulosic biofuel plant property placed in

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service after October 3, 2008, qualified
disaster assistance property, and certain
qualified property acquired after December
31, 2007, and placed in service before
January 1, 2009.
You may be able to take a special

TIP depreciation allowance for qualified
Recovery Assistance property you
acquired after May 4, 2007, and placed in
service in the Kansas disaster area. For
more information, see Pub. 4492-A and
Notice 2008-67, 2008-32 I.R.B. 307,
available at
www.irs.gov/irb/2008-32_irb/ar14.html.
Qualified New York Liberty Zone
(Liberty Zone) property. Qualified Liberty
Zone property is nonresidential real property
or residential rental property.
The following rules also apply.

• The 30% special depreciation allowance
applies to qualified Liberty Zone property.
• You must have acquired qualified Liberty
Zone property by purchase after September
10, 2001. If a binding contract to acquire the
property existed before September 11,
2001, the property does not qualify.
• Qualified Liberty Zone property must be
placed in service before January 1, 2010.
• The original use of the property within the
Liberty Zone must begin with you.
• Substantially all (80% or more) of the use
of the property must be in the Liberty Zone
in the active conduct of your trade or
business.
• For property you sold and leased back or
for self-constructed property, special rules
apply. See section 1400L(b)(2)(D).
Qualified GO Zone property. Qualified
GO Zone property, including specified GO
Zone extension property (defined below), is
nonresidential real property and residential
rental property.
Specified GO Zone extension property is:
1. Nonresidential real property or
residential rental property placed in service
in specified areas of the GO Zone (as
defined in section 1400N(d)(6)(C)) before
January 1, 2011, or
2. Any of the following types of property
placed in service in a building described
above before January 1, 2011.
a. Tangible property depreciated under
MACRS with a recovery period of 20 years
or less,
b. Water utility property (see 25-year
property on page 8),
c. Computer software defined in and
depreciated under section 167(f)(1), or
d. Qualified leasehold improvement
property.
In addition, substantially all (80% or
more) of the use of the property described in
(a) through (d) above must be in the building
and placed in service no later than 90 days
after the building is placed in service.
For information, see section 1400N(d)(6)
and Notice 2007-36, 2007-17 I.R.B. 1000 at
www.irs.gov/irb/2007-17_IRB/ar12.html.
The following rules also apply.

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• The 50% special depreciation allowance
applies to specified GO Zone extension
property (defined above). For nonresidential
real or residential rental property that is
specified GO Zone extension property, only
the adjusted basis of the property
attributable to manufacture, construction, or
production before January 1, 2010, is
eligible for the special depreciation
allowance.
• You must have acquired qualified GO
Zone property, including specified GO Zone
extension property (defined earlier), by
purchase after August 27, 2005. If a binding
contract to acquire the property existed
before August 28, 2005, the property does
not qualify.
• Qualified GO Zone property, other than
specified GO Zone extension property
(defined earlier), must be placed in service
before January 1, 2009.
• The original use of the property within the
GO Zone must begin with you after August
27, 2005.
• Substantially all (80% or more) of the use
of the property must be in the GO Zone in
the active conduct of your trade or business.
• For property you sold and leased back or
for self-constructed property, special rules
apply. See section 1400N(d)(3).
Qualified cellulosic biomass ethanol
plant property and qualified cellulosic
biofuel plant property. Qualified cellulosic
biomass ethanol plant property is property
used solely in the U.S. to produce cellulosic
biomass ethanol. Cellulosic biomass ethanol
is ethanol produced by hydrolysis of any
lignocellulosic or hemicellulosic matter that
is available on a renewable or recurring
basis. For example, lignocellulosic or
hemicellulosic matter that is available on a
renewable or recurring basis includes
bagasse (from sugar cane), corn stalks, and
switchgrass.
Qualified cellulosic biofuel plant property
is property used solely in the U.S. to
produce cellulosic biofuel. Cellulosic biofuel
is any liquid fuel which is produced from any
lignocellulosic or hemicellulosic matter that
is available on a renewable or recurring
basis. For example, lignocellulosic or
hemicellulosic matter that is available on a
renewable or recurring basis includes
bagasse (from sugar cane), corn stalks, and
switchgrass.
The 50% special depreciation allowance
applies to qualified cellulosic biomass
ethanol plant property and qualified
cellulosic biofuel plant property. The
property must also meet the following
requirements.
• The original use of the property must
begin with you after December 20, 2006.
• You must have acquired the property by
purchase after December 20, 2006. If a
binding contract to acquire the property
existed before December 21, 2006, the
property does not qualify.
• Qualified cellulosic biomass ethanol
property must be placed in service for use in
your trade or business or for the production
of income before January 1, 2013.

• Qualified cellulosic biofuel plant property
must be placed in service for use in your
trade or business or for the production of
income after October 3, 2008, and before
January 1, 2013.
• For property you sold and leased back or
for self-constructed property, special rules
apply. See section 168(l)(5).
Certain qualified property acquired
after December 31, 2007, and placed in
service before January 1, 2009. Certain
qualified property (defined below) acquired
after December 31, 2007, is eligible for a
50% special depreciation allowance. If a
binding contract to acquire the property
existed before January 1, 2008, the property
does not qualify.
Qualified property includes the following.

• Tangible property depreciated under

MACRS with a recovery period of 20 years
or less.
• Water utility property (see 25-year
property on page 8).
• Computer software defined in and
depreciated under section 167(f)(1).
• Qualified leasehold improvement
property.
Qualified property must also be placed in
service before January 1, 2009 (before
January 1, 2010, for certain property with a
long production period and for certain
aircraft). The original use of the property
must begin with you after December 31,
2007.
Qualified reuse and recycling
property. Certain qualified reuse and
recycling property (defined below) placed in
service after August 31, 2008, is eligible for
a 50% special depreciation allowance.
Qualified reuse and recycling property
includes any machinery and equipment (not
including buildings or real estate), along with
any appurtenance, that is used exclusively
to collect, distribute, or recycle qualified
reuse and recyclable materials. This
includes software necessary to operate such
equipment. See section 168(m)(3) for more
information.
Qualified reuse and recycling property
must also meet all of the following tests.
• The property must be depreciated under
MACRS.
• The property must have a useful life of at
least 5 years.
• You must have acquired the property by
purchase after August 31, 2008. If a binding
contract to acquire the property existed
before September 1, 2008, the property
does not qualify.
• The property must be placed in service
after August 31, 2008.
• The original use of the property must
begin with you after August 31, 2008.
• For self-constructed property, special
rules apply. See section 168(m)(2)(C).
Qualified reuse and recycling property
does not include rolling stock or other
equipment used to transport reuse and
recyclable materials or any property to
which section 168(g) or (k) applies.

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Qualified disaster assistance
property. You may be able to take a 50%
special depreciation allowance for qualified
disaster assistance property (defined below)
placed in service in federally declared
disaster areas in which the disaster
occurred after December 31, 2007. A list of
the federally declared disaster areas is
available at the FEMA web site at www.
fema.gov.
Qualified disaster assistance property is:

• Tangible property depreciated under

MACRS with a recovery period of 20 years
or less,
• Computer software defined in and
depreciated under section 167(f)(1),
• Water utility property (see 25-year
property on page 8),
• Qualified leasehold improvement
property,
• Nonresidential real property, or
• Residential rental property.
Qualified disaster assistance property
must also meet all of the following rules.
• The property must rehabilitate property
damaged, or replace property destroyed or
condemned, as a result of the applicable
federally declared disaster area.
• The property must be similar in nature to,
and located in the same county as, the
property being rehabilitated or replaced.
• Substantially all (80% or more) of the use
of the property must be in the active conduct
of your trade or business in a federally
declared disaster area.
• You must have acquired the property by
purchase on or after the applicable disaster
date. If a binding contract to acquire the
property existed before the applicable
disaster date, the property does not qualify.
• The original use of the property within the
applicable disaster area must begin with you
on or after the applicable disaster date.
• The property is placed in service by you
on or before the date which is the last day of
the third calendar year following the
applicable disaster date (the fourth calendar
year in the case of nonresidential real
property and residential rental property).
• For property you sold and leased back or
for self-constructed property special rules
apply. See section 168(n)(2)(C).
For more information, see Pub. 946.
Election to accelerate research and
minimum tax credits in lieu of special
depreciation allowance. Corporations and
a certain automotive partnership may elect
to claim pre-2006 unused research credits
or minimum tax credits in lieu of claiming the
special depreciation allowance for certain
property (as defined in section 168(k)(4)(D))
acquired after March 31, 2008, and placed
in service before January 1, 2009.
If the election is made, the taxpayer must
not take the 50% special depreciation
allowance for the property and must
depreciate the basis in the property under
MACRS using the straight line method. See
Lines 19a Through 19i on page 7 for more
information.

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Once made, the election cannot be
revoked without IRS consent.
For more information on making this
election, see Form 3800, General Business
Credit; Form 8827, Credit for Prior Year
Minimum Tax — Corporations; and related
instructions. Also, see section 168(k)(4).
Exceptions. Qualified property does
not include:
• Listed property used 50% or less in a
qualified business use (as defined in the
instructions for lines 26 and 27),
• Any property required to be depreciated
under the alternative depreciation system
(ADS) (that is, not property for which you
elected to use ADS),
• Qualified Liberty Zone leasehold
improvement property,
• Property placed in service and disposed
of in the same tax year,
• Property converted from business or
income-producing use to personal use in the
same tax year it is acquired, or
• Property for which you elected not to
claim any special depreciation allowance.
• Any qualified restaurant property (as
defined in section 168(e)(7)) placed in
service after December 31, 2008.
• Any qualified retail improvement property
(as defined in section 168(e)(8)) placed in
service after December 31, 2008.
Qualified GO Zone property, including
specified GO Zone extension property, also
does not include:
• Any tax-exempt bond financed property
under section 103,
• Any qualified revitalization building for
which you have elected to deduct
expenditures under section 1400I, or
• Any property described in section
1400N(p)(3).
In addition, qualified cellulosic biomass
ethanol and cellulosic biofuel plant property
does not include the following:
• Any tax-exempt bond financed property
under section 103.
• Any property for which a deduction was
taken under section 179C for certain
qualified refinery property.
Qualified disaster assistance property
does not include:
• Other bonus depreciation property to
which section 168(k) or section 1400N(d)
applies.
• Any property described in section
1400N(p)(3).
• Any tax-exempt bond financed property
under section 103.
• Any qualified revitalization building for
which you have elected to deduct
expenditures under section 1400I(a).
• Any property to which section 168(g)
applies.
See sections 168(k), 168(l), 168(m), 168(n),
1400L(b), and 1400N(d) for additional
information. Also, see Pub. 946.
How to figure the allowance. Figure the
special depreciation allowance by
multiplying the depreciable basis of the
property by 50% (or 30%, if applicable).

To figure the depreciable basis, subtract
from the business/investment portion of the
cost or other basis of the property any
credits and deductions allocable to the
property. The following are examples of
some credits and deductions that reduce the
depreciable basis.
• Section 179 expense deduction.
• Deduction for removal of barriers to the
disabled and the elderly.
• Disabled access credit.
• Enhanced oil recovery credit.
• Credit for employer-provided childcare
facilities and services.
• Basis adjustment to investment credit
property under section 50(c).
For additional credits and deductions that
affect the depreciable basis, see section
1016. Also, see Pub. 946.
Note. If you acquired qualified property
through a like-kind exchange or involuntary
conversion, the carryover basis and any
excess basis of the acquired property is
eligible for the special depreciation
allowance. See Regulations section
1.168(k)-1(f)(5).
If you take the 30% or 50% special
depreciation allowance, you must
CAUTION reduce the amount on which you
figure your regular depreciation or
amortization deduction by the amount
deducted. Also, you will not have any AMT
adjustment for the property if the
depreciable basis of the property for the
AMT is the same as for the regular tax.
Election out. You can elect, for any class
of property, to not deduct any special
depreciation allowance for all such property
in such class placed in service during the
tax year.
To make an election, attach a statement
to your timely filed return (including
extensions) indicating the class of property
for which you are making the election and
that, for such class you are not to claim any
special depreciation allowance.
The election must be made separately by
each person owning qualified property (for
example, by the partnership, by the S
corporation, or by the common parent of a
consolidated group).
If you timely filed your return without
making an election, you can still make the
election by filing an amended return within 6
months of the due date of the return
(excluding extensions). Write “Filed
pursuant to section 301.9100-2” on the
amended return.
Once made, the election cannot be
revoked without IRS consent.
Note. If you elect not to have any special
depreciation allowance apply, the property
may be subject to an AMT adjustment for
depreciation.

!

Recapture. When you dispose of property
for which you claimed a special depreciation
allowance, any gain on the disposition is
generally recaptured (included in income) as
ordinary income up to the amount of the
special depreciation allowance you

-6-

deducted. If qualified GO Zone property
ceases to be qualified GO Zone property, if
qualified Recovery Assistance property
ceases to be qualified Recovery Assistance
property, if qualified cellulosic biomass
ethanol plant property ceases to be qualified
cellulosic biomass ethanol plant property, if
qualified cellulosic biofuel plant property
ceases to be qualified cellulosic biofuel plant
property, or if qualified disaster assistance
property ceases to be qualified disaster
assistance property in any year after the
year you claim the special depreciation
allowance, the excess benefit you received
from claiming the special depreciation
allowance must be recaptured as ordinary
income. For information on depreciation
recapture, see Pub. 946. Also, see Notice
2008-25, 2008-9 I.R.B. 484, available at
www.irs.gov/irb/2008-9_IRB/ar10.html for
additional guidance on recapture of qualified
GO Zone property.

Line 15
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 retirementreplacement-betterment method).
Attach a separate sheet showing:

• A description of the property and the
depreciation method you elect that excludes
the property from MACRS or the
Accelerated Cost Recovery System (ACRS);
and
• The depreciable basis (cost or other basis
reduced, if applicable, by salvage value, any
section 179 expense deduction, deduction
for removal of barriers to the disabled and
the elderly, disabled access credit,
enhanced oil recovery credit, credit for
employer-provided childcare facilities and
services, any special depreciation
allowance, and any other applicable
deduction or credit).
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.

Line 16
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).
• ACRS property (pre-1987 rules). See
Pub. 534.
• Property placed in service before 1981.
• Certain public utility property which does
not meet certain normalization
requirements.
• Certain property acquired from related
persons.
• Property acquired in certain
nonrecognition transactions.
• Certain sound recordings, movies, and
videotapes.
• Property depreciated under the income
forecast method. The use of the income
forecast method is limited to motion picture

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films, videotapes, sound recordings,
copyrights, books, and patents.
If you use the income forecast method
for any property placed in service after
September 13, 1995, you may owe interest
or be entitled to a refund for the 3rd and
10th tax years beginning after the tax year
the property was placed in service. For
details, see Form 8866, Interest
Computation Under the Look-Back Method
for Property Depreciated Under the Income
Forecast Method.
For property placed in service in the
current tax year, you can either include
certain participations and residuals in the
adjusted basis of the property or deduct
these amounts when paid. See section
167(g)(7). You cannot use this method to
depreciate any amortizable section 197
intangible. See page 14 of the instructions
for more details on section 197 intangibles.
You can elect to amortize all applicable
expenses paid or incurred in the current
year in creating or acquiring musical
compositions or copyrights to musical
compositions placed in service during the
tax year. If you make the election, amortize
the expenses ratably over a 5-year period
beginning with the month the property is
placed in service. See section 167(g)(8).
This election does not apply to the following:
1. Expenses that are qualified creative
expenses under section 263A(h);
2. Property to which a simplified
procedure established under section 263A(j)
applies;
3. Property that is an amortizable
section 197 intangible; or
4. Expenses that would not be allowable
as a deduction.
• Intangible property, other than section
197 intangibles, including:
1. Computer software. Use the straight
line method over 36 months. A longer period
may apply to software 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
167(f)(1)(C).
If you elect the section 179 expense
deduction or take the special
CAUTION depreciation allowance for qualified
computer software, you must reduce the
amount on which you figure your regular
depreciation deduction by the amount
deducted.
2. Any right to receive tangible property
or services under a contract or granted by a
governmental unit (not acquired as part of a
business).
3. Any interest in a patent or copyright
not acquired as part of a business.
4. Residential mortgage servicing rights.
Use the straight line method over 108
months.
5. Other intangible assets with a limited
useful life that cannot be estimated with
reasonable accuracy. Generally, use the
straight line method over 15 years. See

!

Regulations section 1.167(a)-3(b) for details
and exceptions.
Prior years’ depreciation, plus
current year’s depreciation, can
CAUTION never exceed the depreciable basis
of the property.

!

Part III. MACRS
Depreciation
The term “Modified Accelerated Cost
Recovery System” (MACRS) includes the
General Depreciation System and the
Alternative Depreciation System. Generally,
MACRS is used to depreciate any tangible
property placed in service after 1986.
However, MACRS does not apply to films,
videotapes, and sound recordings. For more
details and exceptions, see Pub. 946.

Section A
Line 17
For tangible property placed in service in tax
years beginning before 2007 and
depreciated under MACRS, enter the
deductions for the current year. To figure the
deductions, see the instructions for line 19,
column (g).

Line 18
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.
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.

-7-

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

Section B
Property acquired in a like-kind
exchange or involuntary conversion.
Generally, you must depreciate the
carryover basis of property you acquire in a
like-kind exchange or involuntary conversion
during the current tax year over the
remaining recovery period of the property
exchanged or involuntarily converted. Use
the same depreciation method and
convention that was used for the exchanged
or involuntarily converted property. Treat
any excess basis as newly placed in service
property. Figure depreciation separately for
the carryover basis and the excess basis, if
any.
These rules apply only to acquired
property with the same or a shorter recovery
period or the same or a more accelerated
depreciation method than the property
exchanged or involuntarily converted. For
additional rules, see Regulations section
1.168(i)-6(c) and Pub. 946.
Election out. Instead of using the
above rules, you can elect, for depreciation
purposes, to treat the adjusted basis of the
exchanged property as if it was disposed of
at the time of the exchange or involuntary
conversion. Generally, treat the carryover
basis and excess basis, if any, for the
acquired property as if placed in service on
the date you acquired it. The depreciable
basis of the new property is the adjusted
basis of the exchanged or involuntarily
converted property plus any additional
amount paid for it. See Regulations section
1.168(i)-6(i).
To make the election, figure the
depreciation deduction for the new property
in Part III. For listed property, use Part V.
Attach a statement indicating “Election
made under section 1.168-6(i)” for each
property involved in the exchange or
involuntary conversion. The election must
be made separately by each person
acquiring replacement property (for
example, by the partnership, by the S
corporation, or by the common parent of a
consolidated group). The election must be
made on your timely filed return (including
extensions). Once made, the election
cannot be revoked without IRS consent.
If you trade in a vehicle used for
employee business use, complete
CAUTION Form 2106, Part II, Section D,
instead of Form 4562, to “elect out” of
Regulations section 1.168(i)-6. If you do not
“elect out,” you must use Form 4562 instead
of Form 2106. See the Instructions for Form
2106.

!

Lines 19a Through 19i
Use lines 19a through 19i only for assets
placed in service during the tax year
beginning in 2008 and depreciated under
the General Depreciation System (GDS),

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except for automobiles and other listed
property (which are reported in Part V).
Column (a) — Classification of property.
Sort the property you acquired and placed in
service during the tax year beginning in
2008 according to its classification (3-year
property, 5-year property, etc.) as shown in
column (a) of lines 19a through 19i. The
classifications for some property are shown
below. For property not shown, see
Determining the classification below.
3-year property includes:

• A race horse that is more than 2 years old
at the time it is placed in service before
January 1, 2009.
Note. Any race horse placed in service
after December 31, 2008, and before
January 1, 2014, is treated as 3-year
property (regardless of the age of the race
horse).
• Any horse (other than a race horse) that
is more than 12 years old at the time it is
placed in service.
• Any qualified rent-to-own property (as
defined in section 168(i)(14)).
5-year property includes:

• Automobiles.
• Light general purpose trucks.
• Typewriters, calculators, copiers, and
duplicating equipment.

• Any semi-conductor manufacturing
equipment.
• Any computer or peripheral equipment.
• Any section 1245 property used in
connection with research and
experimentation.
• Certain energy property specified in
section 168(e)(3)(B)(vi).
• Appliances, carpets, furniture, etc., used
in a rental real estate activity.
• Any machinery or equipment (other than
any grain bin, cotton ginning asset, fence, or
other land improvement) used in a farming
business (as defined in section 263A(e)(4))
where the original use begins with the
taxpayer after December 31, 2008, and is
placed in service before January 1, 2010.
7-year property includes:

• Office furniture and equipment.
• Railroad track.
• Any motorsports entertainment complex
(as defined in section 168(i)(15)).

• Any natural gas gathering line (as defined
in section 168(i)(17)) placed in service after
April 11, 2005, the original use of which
begins with you after April 11, 2005, and is
not under self-construction or subject to a
binding contract in existence before April 12,
2005. Also, no AMT adjustment is required.
• Any property that does not have a class
life and is not otherwise classified.
10-year property includes:
• Vessels, barges, tugs, and similar water
transportation equipment.
• Any single purpose agricultural or
horticultural structure (see section
168(i)(13)).
• Any tree or vine bearing fruit or nuts.
• Any qualified smart electric meter
property placed in service after October 3,
2008.

• Any qualified smart electric grid system
property placed in service after October 3,
2008.
15-year property includes:

• Any municipal wastewater treatment
plant.

• Any telephone distribution plant and
comparable equipment used for 2-way
exchange of voice and data
communications.
• Any section 1250 property that is a retail
motor fuels outlet (whether or not food or
other convenience items are sold there).
• Any qualified leasehold improvement
property.
• Any qualified restaurant property.
• Initial clearing and grading land
improvements for gas utility property.
• Certain electric transmission property
specified in section 168(e)(3)(E)(vii) placed
in service after April 11, 2005, the original
use of which begins with you after April 11,
2005, and is not under self-construction or
subject to a binding contract in existence
before April 12, 2005.
• Any natural gas distribution line placed in
service after April 11, 2005, the original use
of which begins with you after April 11,
2005, and is not under self-construction or
subject to a binding contract in existence
before April 12, 2005.
• Any qualified retail improvement property
(as defined in section 168(e)(8)) placed in
service after December 31, 2008.
20-year property includes:

• Farm buildings (other than single purpose
agricultural or horticultural structures).
• Municipal sewers not classified as
25-year property.
• Initial clearing and grading land
improvements for electric utility transmission
and distribution plants.
25-year property is water utility property,
which is:
• Property that is an integral part of the
gathering, treatment, or commercial
distribution of water that, without regard to
this classification, would be 20-year
property.
• Municipal sewers. This classification does
not apply to property placed in service under
a binding contract in effect at all times since
June 9, 1996.
Residential rental property is a building
in which 80% or more of the total rent is
from dwelling units.
Nonresidential real property is any real
property that is neither residential rental
property nor property with a class life of less
than 27.5 years.
50-year property includes any
improvements necessary to construct or
improve a roadbed or right-of-way for
railroad track that qualifies as a railroad
grading or tunnel bore under section
168(e)(4).
There is no separate line to report
50-year property. Therefore, attach a

-8-

statement showing the same information as
required in columns (a) through (g). Include
the deduction in the line 22 “Total” and write
“See attachment” in the bottom margin of
the form.
Determining the classification. If your
depreciable property is not listed above,
determine the classification as follows.
1. Find the property’s class life. See the
Table of Class Lives and Recovery Periods
in Pub. 946.
2. Use the following table to find the
classification in column (b) that corresponds
to the class life of the property in column (a).
(a)
Class life (in years)
(See Pub. 946)
4 or less . . . . . . . . . . . . . .
More than 4 but less than 10
10 or more but less than 16
16 or more but less than 20
20 or more but less than 25
25 or more . . . . . . . . . . . .

(b)
Classification
3-year property
5-year property
7-year property
10-year property
15-year property
20-year property

Column (b) — Month and year placed in
service. For lines 19h and 19i, enter the
month and year you placed the property in
service. If you converted property held for
personal use to use in a trade or business or
for the production of income, treat the
property as being placed in service on the
conversion date.
Column (c) — Basis for depreciation
(business/investment use only). To find
the basis for depreciation, multiply the cost
or other basis of the property by the
percentage of business/investment use.
From that result, subtract any credits and
deductions allocable to the property. The
following are examples of some credits and
deductions that reduce the basis for
depreciation.
• Section 179 expense deduction.
• Deduction under section 179C for certain
qualified refinery property.
• Deduction under section 179D for certain
energy efficient commercial building
property.
• Deduction for removal of barriers to the
disabled and the elderly.
• Disabled access credit.
• Enhanced oil recovery credit.
• Credit for alternative fuel vehicle refueling
property.
• Credit for employer-provided childcare
facilities and services.
• Any special depreciation allowance
included on line 14.
• Any basis adjustment for investment
credit property. See section 50(c).
For additional credits and deductions that
affect the depreciable basis, see section
1016 and Pub. 946.

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Column (d) — Recovery period.
Determine the recovery period from the
following table. See Pub. 946 for more
information on the recovery period for
MACRS property.
Recovery Period for Most Property

Classification
3-year property . . . . . . . . .
5-year property . . . . . . . . .
7-year property . . . . . . . . .
10-year property . . . . . . . .
15-year property . . . . . . . .
20-year property . . . . . . . .
25-year property . . . . . . . .
Residential rental property . .
Nonresidential real property .
Railroad gradings and tunnel
bores . . . . . . . . . . . . . . . .

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Recovery
period
3 yrs.
5 yrs.
7 yrs.
10 yrs.
15 yrs.
20 yrs.
25 yrs.
27.5 yrs.
39 yrs.

...

50 yrs.

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Indian reservation property. For
qualified Indian reservation property placed
in service during the tax year, the following
shorter recovery periods apply.
Recovery Period for Qualified
Indian Reservation Property

Property class
3-year property . . . . . . . .
5-year property . . . . . . . .
7-year property . . . . . . . .
10-year property . . . . . . .
15-year property . . . . . . .
20-year property . . . . . . .
Nonresidential real property

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.

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Recovery
period
2 yrs.
3 yrs.
4 yrs.
6 yrs.
9 yrs.
12 yrs.
22 yrs.

For example, figure depreciation on
5-year property acquired during the tax year
that is qualified Indian reservation property
in the same manner as depreciation is
figured for 3-year property that is not
qualified Indian reservation property. Report
the depreciation on line 19b, entering
“3 yrs.” as the recovery period in column (d).
For more information, including the
definition of qualified property, see Pub.
946.
Column (e) — Convention. The
applicable convention determines the
portion of the tax year for which depreciation
is allowable during a year property is either
placed in service or disposed of. There are
three types of conventions. To select the
correct convention, you must know the type
of property and when you placed the
property in service.
Half-year convention. This convention
applies to all property reported on lines 19a
through 19g, unless the mid-quarter
convention applies. It does not apply to
residential rental property, nonresidential
real property, and railroad gradings and
tunnel bores. It treats all property placed in
service (or disposed of) during any tax year
as placed in service (or disposed of) on the

midpoint of that tax year. Enter “HY” in
column (e).
Mid-quarter convention. If the total
depreciable bases (before any special
depreciation allowance) of MACRS property
placed in service during the last 3 months of
your tax year exceed 40% of the total
depreciable bases of MACRS property
placed in service during the entire tax year,
the mid-quarter, instead of the half-year,
convention generally applies.
In determining whether the mid-quarter
convention applies, do not take into account
the following.
• Property that is being depreciated under a
method other than MACRS.
• Any residential rental property,
nonresidential real property, or railroad
gradings and tunnel bores.
• Property that is placed in service and
disposed of within the same tax year.
The mid-quarter convention treats all
property placed in service (or disposed of)
during any quarter as placed in service (or
disposed of) on the midpoint of that quarter.
However, no depreciation is allowed under
this convention for property that is placed in
service and disposed of within the same tax
year. Enter “MQ” in column (e).
Mid-month convention. This
convention applies only to residential rental
property (line 19h), nonresidential real
property (line 19i), and railroad gradings and
tunnel bores. It treats all property placed in
service (or disposed of) during any month as
placed in service (or disposed of) on the
midpoint of that month. Enter “MM” in
column (e).
Column (f) — Method. Applicable
depreciation methods are prescribed for
each classification of property as follows.
However, you can make an irrevocable
election to use the straight line method for
all property within a classification that is
placed in service during the tax year. Enter
“200 DB” for 200% declining balance, “150
DB” for 150% declining balance, or “S/L” for
straight line.
Note. If you elected to accelerate pre-2006
unused research and minimum tax credits in
lieu of special depreciation allowance for
eligible property (as discussed on page 5),
you must depreciate the basis in the
property using the straight line method.
Enter “S/L” in this column for the applicable
property classification. If you are
depreciating other property in the same
classification as the property for which this
election was made and using a different
method, enter “Various” in this column.
• 3-, 5-, 7-, and 10-year property.
Generally, the applicable method is the
200% declining balance method, switching
to the straight line method in the first tax
year that the straight line rate exceeds the
declining balance rate.
Note. The straight line method is the only
applicable method for trees and vines
bearing fruit or nuts. The 150% declining
balance method is the only applicable
method for any qualified smart electric meter

-9-

or any qualified smart electric grid system
property placed in service after October 3,
2008.
For 3-, 5-, 7-, or 10-year property eligible
for the 200% declining balance method, you
can make an irrevocable election to use the
150% declining balance method, switching
to the straight line method in the first tax
year that the straight line rate exceeds the
declining balance rate. The election applies
to all property within the classification for
which it is made and that was placed in
service during the tax year. You will not
have an AMT adjustment for any property
included under this election.
• 15- and 20-year property (not including
qualified leasehold improvement,
qualified restaurant property, or qualified
retail improvement property), and
property used in a farming business. The
applicable method is the 150% declining
balance method, switching to the straight
line method in the first tax year that the
straight line rate exceeds the declining
balance rate.
• Water utility property, residential rental
property, nonresidential real property,
qualified leasehold improvement
property, qualified restaurant property,
qualified retail improvement property
placed in service after December 31,
2008, or any railroad grading or tunnel
bore. The only applicable method is the
straight line method.
Column (g) — Depreciation deduction.
To figure the depreciation deduction, you
may use optional Tables A through E, which
begin on page 16. Multiply column (c) by the
applicable rate from the appropriate table.
See Pub. 946 for complete tables. If you
disposed of the property during the current
tax year, multiply the result by the applicable
decimal amount from the tables in Step 3
below. Or, you may compute the deduction
yourself by completing the following steps.
Step 1. Determine the depreciation rate
as follows.
• If you are using the 200% or 150%
declining balance method in column (f),
divide the declining balance rate (use 2.00
for 200 DB or 1.50 for 150 DB) by the
number of years in the recovery period in
column (d). For example, for property
depreciated using the 200 DB method over
a recovery period of 5 years, divide 2.00 by
5 for a rate of 40%. You must switch to the
straight line rate in the first year that the
straight line rate exceeds the declining
balance rate.
• If you are using the straight line method,
divide 1.00 by the remaining number of
years in the recovery period as of the
beginning of the tax year (but not less than
one). For example, if there are 61/2 years
remaining in the recovery period as of the
beginning of the year, divide 1.00 by 6.5 for
a rate of 15.38%.
Step 2. Multiply the percentage rate
determined in Step 1 by the property’s
unrecovered basis (basis for depreciation

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(as defined in column (c)) reduced by all
prior years’ depreciation).
Step 3. For property placed in service
or disposed of during the current tax year,
multiply the result from Step 2 by the
applicable decimal amount from the tables
below (based on the convention shown in
column (e)).
Half-year (HY) convention . . . . . . . . . . 0.5
Mid-quarter (MQ) convention
Placed in service
(or disposed of)
during the:
1st quarter . . . . .
2nd quarter . . . . .
3rd quarter . . . . .
4th quarter . . . . .

Placed
in service
0.875
0.625
0.375
0.125

Disposed
of
0.125
0.375
0.625
0.875

Mid-month (MM) convention
Placed in service
(or disposed of)
Placed
during the:
in service
1st month . . . . . . .
0.9583
2nd month . . . . . .
0.8750
3rd month . . . . . . .
0.7917
4th month . . . . . . .
0.7083
5th month . . . . . . .
0.6250
6th month . . . . . . .
0.5417
7th month . . . . . . .
0.4583
8th month . . . . . . .
0.3750
9th month . . . . . . .
0.2917
10th month . . . . . .
0.2083
11th month . . . . . .
0.1250
12th month . . . . . .
0.0417

Disposed
of
0.0417
0.1250
0.2083
0.2917
0.3750
0.4583
0.5417
0.6250
0.7083
0.7917
0.8750
0.9583

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Short tax years. See Pub. 946 for rules
on how to compute the depreciation
deduction for property placed in service in a
short tax year.

Section C
Lines 20a Through 20c
Complete lines 20a through 20c for assets,
other than automobiles and other listed
property, placed in service only during the
tax year beginning in 2008 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.
• Tangible property used predominantly
outside the United States.
• Tax-exempt use property.
• Tax-exempt bond financed property.
• Imported property covered by an
executive order of the President of the
United States.
• Property used predominantly in a farming
business and placed in service during any

tax year in which you made an election
under section 263A(d)(3) not to have the
uniform capitalization rules of section 263A
apply.
Instead of depreciating property under
GDS (line 19), you can make an irrevocable
election for 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. You may make this election by
completing line 20 of Form 4562.
Column (a) — Classification of property.
Use the following rules to determine the
classification of the property under ADS.
Under ADS, the depreciation deduction
for most property is based on the property’s
class life. See section 168(g)(3) for special
rules for determining the class life for certain
property. See Pub. 946 for information on
recovery periods for ADS and the Table of
Class Lives and Recovery Periods.
Use line 20a for all property depreciated
under ADS, except property that does not
have a class life, residential rental and
nonresidential real property, water utility
property, and railroad gradings and tunnel
bores. Use line 20b for property that does
not have a class life. Use line 20c for
residential rental and nonresidential real
property.
Water utility property and railroad
gradings and tunnel bores. These assets
are 50-year property under ADS. There is
no separate line to report 50-year property.
Therefore, attach a statement showing the
same information required in columns (a)
through (g). Include the deduction in the line
22 “Total” and write “See attachment” in the
bottom margin of the form.
Column (b) — Month and year placed in
service. For 40-year property, enter the
month and year placed in service or
converted to use in a trade or business or
for the production of income.
Column (c) — Basis for depreciation
(business/investment use only). See the
instructions for line 19, column (c).
Column (d) — Recovery period. On line
20a, enter the property’s class life.
Column (e) — Convention. Under ADS,
the applicable conventions are the same as
those used under GDS. See the instructions
for line 19, column (e).
Column (g) — Depreciation deduction.
Figure the depreciation deduction in the
same manner as under GDS, except use
the straight line method over the ADS
recovery period and use the applicable
convention.
MACRS recapture. If you later dispose of
property you depreciated using MACRS,
any gain on the disposition is generally
recaptured (included in income) as ordinary
income up to the amount of the depreciation
previously allowed or allowable for the
property. Depreciation, for this purpose,
includes any of the following deductions
taken during the 2008 tax year.

-10-

• Any section 179 expense deduction
claimed on the property,
• Any special depreciation allowance
available for the property (unless you
elected not to claim it),
• Any deduction under section 179B for
capital costs incurred in complying with
Environmental Protection Agency sulfur
regulations,
• Any deduction under section 179C for
certain qualified refinery property, and
• Any deduction under section 179D for
certain energy efficient commercial building
property.
There is no recapture for residential
rental and nonresidential real property,
unless that property is qualified property for
which you claimed a special depreciation
allowance (discussed earlier). For more
information on depreciation recapture, see
Pub. 946.

Part IV. Summary
Line 22
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.

Line 23
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.

Part V. Listed Property
If you claim the standard mileage rate,
actual vehicle expenses (including
depreciation), or depreciation on other listed
property, you must provide the information
requested in Part V, regardless of the tax
year the property was placed in service.
However, if you file Form 2106 or 2106-EZ,
report this information on that form and not
in Part V. Also, if you file Schedule C (Form
1040) or Schedule C-EZ (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
or in Part III of Schedule C-EZ and not on
Form 4562.

Section A
The section 179 expense deduction
should be computed before
CAUTION calculating any special depreciation
allowance and/or regular depreciation
deduction. See the instructions for line 26,
column (i).

!

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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.

Line 25
If you placed in service certain qualified
property after December 31, 2007, certain
specified GO Zone extension property,
qualified Recovery Assistance property, or
qualified disaster assistance 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. See the tables on page 12 for
limitations on passenger vehicles and trucks
and vans. Enter on line 25 your total special
depreciation allowance for all qualified listed
property.

Lines 26 and 27
Use line 26 to figure depreciation for
property used more than 50% in a qualified
business use. Use line 27 to figure the
depreciation for property used 50% or less
in a qualified business use. Also see Limits
for passenger automobiles on page 12.
If you acquired the property through
a trade-in, special rules apply for
CAUTION determining the basis, recovery
period, depreciation method, and
convention. For more details, see Property
acquired in a like-kind exchange or
involuntary conversion on page 7. Also, see
Regulations section 1.168(i)-6(d)(3).

!

Qualified business use. To determine
whether to use line 26 or line 27 to report
your listed property, you must first determine
the percentage of qualified business use for
each property. Generally, a qualified
business use is any use in your trade or
business. However, it does not include any
of the following.
• Investment use.
• Leasing the property to a 5% owner or
related person.
• The use of the property as compensation
for services performed by a 5% owner or
related person.
• The use of the property as compensation
for services performed by any person (who
is not a 5% owner or related person), unless
an amount is included in that person’s
income for the use of the property and, if
required, income tax was withheld on that
amount.
Excluding these uses above from the
numerator, 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 a 5% owner and related person
and exceptions, see Pub. 946.
Listed property recapture. If you used
listed property more than 50% in a qualified
business use in the year you placed the
property in service, and used it 50% or less
in a later year, you may have to include as
income part of the depreciation deducted in
prior years. Use Form 4797, Sales of
Business Property, to figure the recapture
amount.
Column (a) — Type of property. List on a
property-by-property basis all your listed
property in the following order.
1. Automobiles and other vehicles.
2. Other listed property (computers and
peripheral equipment, etc.).
In column (a), list the make and model of
automobiles, and give a general description
of other listed property.
If you have more than five vehicles used
100% for business/investment purposes,
you may group them by tax year. Otherwise,
list each vehicle separately.
Column (b) — Date placed in service.
Enter the date the property was placed in
service. If property held for personal use is
converted to business/investment use, treat
the property as placed in service on the date
of conversion.
Column (c) — Business/investment use
percentage. Enter the percentage of
business/investment use. For automobiles
and other vehicles, determine this
percentage by dividing the number of miles
the vehicle is driven for trade or business
purposes or for the production of income
during the year (not to include any
commuting mileage) by the total number of
miles the vehicle is driven for all purposes.
Treat vehicles used by employees as being
used 100% for business/investment
purposes if the value of personal use is
included in the employees’ gross income, or
the employees reimburse the employer for
the personal use.
Employers who report the amount of
personal use of the vehicle in the
employee’s gross income, and withhold the
appropriate taxes, should enter “100%” for
the percentage of business/investment use.
For more information, see Pub. 463.

Column (d) — Cost or other basis. Enter
the property’s actual cost (including sales
tax) or other basis (unadjusted for prior
years’ depreciation). If you traded in old
property, see Property acquired in a
like-kind exchange or involuntary conversion
on page 7.
For a vehicle, reduce your basis by any
qualified electric vehicle credit you claimed
for property placed in service before
January 1, 2007, or by any alternative motor
vehicle credit allowed.
If you converted the property from
personal use to business/investment use,
your basis for depreciation is the smaller of
the property’s adjusted basis or its fair
market value on the date of conversion.
Column (e) — Basis for depreciation
(business/investment use only). Multiply
column (d) by the percentage in column (c).
From that result, subtract any section 179
expense deduction, any special depreciation
allowance, any credit for employer-provided
childcare facilities and services, and half of
any investment credit taken before 1986
(unless you claimed the reduced credit). For
automobiles and other listed property placed
in service after 1985 (i.e., transition
property), reduce the depreciable basis by
the entire investment credit.
Column (f) — Recovery period. Enter the
recovery period. For property placed in
service after 1986 and used more than 50%
in a qualified business use, use the table in
the instructions for line 19, column (d). For
property placed in service after 1986 and
used 50% or less in a qualified business
use, depreciate the property using the
straight line method over its ADS recovery
period. The ADS recovery period is 5 years
for automobiles and computers.
Column (g) — Method/convention. Enter
the method and convention used to figure
your depreciation deduction. See the
instructions for line 19, columns (e) and (f).
Write “200 DB,” “150 DB,” or “S/L,” for the
depreciation method, and “HY,” “MM,” or
“MQ,” for half-year, mid-month, or
mid-quarter conventions, respectively. For
property placed in service before 1987, write
“PRE” if you used the prescribed
percentages under ACRS. If you elected an
alternate percentage or if you are required
to depreciate the property using the straight
line method, enter “S/L.”

For other listed property (such as
computers or video equipment), allocate the
use based on the most appropriate unit of
time the property is actually used (rather
than merely being available for use).

Column (h) — Depreciation deduction.
See Limits for passenger automobiles,
below, before entering an amount in column
(h).

If during the tax year you convert
property used solely for personal purposes
to business/investment use (or vice versa),
figure the percentage of business/
investment use only for the number of
months you use the property in your
business or for the production of income.
Multiply that percentage by the number of
months you use the property in your
business or for the production of income,
and divide the result by 12.

For property used more than 50% in a
qualified business use (line 26) and placed
in service after 1986, figure column (h) by
following the instructions for line 19, column
(g). If placed in service before 1987, multiply
column (e) by the applicable percentage
given in Pub. 534 for ACRS property. If the
recovery period for an automobile ended
before your tax year beginning in 2008,
enter your unrecovered basis, if any, in
column (h).

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For property used 50% or less in a
qualified business use (line 27) and placed
in service after 1986, figure column (h) by
dividing the amount in column (e) by the
amount in column (f). Use the same
conventions as discussed in the instructions
for line 19, column (e). The amount in
column (h) cannot exceed the property’s
unrecovered basis. If the recovery period for
an automobile ended before your tax year
beginning in 2008, enter your unrecovered
basis, if any, in column (h).
For property placed in service before
1987 that was disposed of during the year,
enter zero.
Limits for passenger automobiles. The
depreciation deduction, including section
179 expense deduction, for passenger
automobiles is limited. For any passenger
automobile (including an electric passenger
automobile) you list on line 26 or line 27, the
total of columns (h) and (i) on line 26 or 27
and column (h) on line 25 for that
automobile cannot exceed the applicable
limit shown in Table 1, 2, 3, or 4. If the
business/investment use percentage in
column (c) for the automobile is less than
100%, you must reduce the applicable limit
to an amount equal to the limit multiplied by
that percentage. For example, for an
automobile (other than a truck or van)
placed in service in 2008 (for which you
elect not to claim any special depreciation
allowance) that is used 60% for business/
investment, the limit is $1,776 ($2,960 x
60%).
Definitions. For purposes of the limits
for passenger automobiles, the following
apply.
• Passenger automobiles are 4-wheeled
vehicles manufactured primarily for use on
public roads that are rated at 6,000 pounds
unloaded gross vehicle weight or less (for a
truck or van, gross vehicle weight is
substituted for unloaded gross vehicle
weight).
• Electric passenger automobiles are
vehicles produced by an original equipment
manufacturer and designed to run primarily
on electricity, placed in service after August
5, 1997, and before January 1, 2007.
Exception. The following vehicles are
not considered passenger automobiles.
• An ambulance, hearse, or combination
ambulance-hearse used in your trade or
business.
• A vehicle used in your trade or business
of transporting persons or property for
compensation or hire.
• Any truck or van placed in service after
July 6, 2003, that is a qualified nonpersonal
use vehicle. A truck or van is a qualified
nonpersonal use vehicle only if it has been
specially modified with the result that it is not
likely to be used more than a de minimis
amount for personal purposes. For example,
a van that has only a front bench for seating,
in which permanent shelving has been
installed, that constantly carries
merchandise or equipment, and that has
been specially painted with advertising or
the company’s name, is a vehicle not likely

to be used more than a de minimis amount
for personal purposes.
Exception for leasehold property.
The business use requirement and the limits
for passenger automobiles generally do not
apply to passenger automobiles leased or
held by anyone regularly engaged in the
business of leasing passenger automobiles.
For a detailed discussion on passenger
automobiles, including leased automobiles,
see Pub. 463.
Table 1 — Limits for Passenger
Automobiles Placed in Service Before
2004 (excluding electric passenger
automobiles placed in service after August
5, 1997)

IF you placed your
automobile in service:

THEN the
limit on your
depreciation
and section 179
expense
deduction is:

June 19 — Dec. 31, 1984

$6,000

Jan. 1 — Apr. 2, 1985

$6,200

Apr. 3, 1985 — Dec. 31, 1986

$4,800

Jan. 1, 1987 — Dec. 31, 1990

$1,475

Jan. 1, 1991 — Dec. 31, 1992

$1,575

Jan. 1, 1993 — Dec. 31, 1994

$1,675

Jan. 1, 1995 — Dec. 31, 2003

$1,775

Table 2 — Limits for Passenger
Automobiles Placed in Service After 2003
(excluding trucks and vans placed in service
after 2002 and electric passenger
automobiles placed in service before
January 1, 2007)

IF you placed
your automobile
in service:

Jan. 1, 2004 —
Dec. 31, 2005

AND the
number of
tax years in
which this
automobile
has been in
service is:

THEN the
limit on your
depreciation
and section
179 expense
deduction is:

4 or more

$1,675

Jan. 1 — Dec. 31,
2006

3

$2,850

4

$1,775

Jan. 1 — Dec. 31,
2007

2

$4,900

3

$2,850

Jan. 1 — Dec. 31,
2008

1

$2,960*

2

$4,800

* If you elect to take the special depreciation allowance for
qualified passenger automobiles placed in service in 2008,
the limit is $10, 960.

Table 3 — Limits for Trucks and Vans
Placed in Service After 2002

IF you placed
your truck or van
in service:

AND the
number of
tax years in
which this
truck or van
has been in
service is:

THEN the
limit on your
depreciation
and section
179 expense
deduction is:

Jan. 1 — Dec. 31,
2003

4 or more

$1,975

4 or more

$1,875

Jan. 1 — Dec. 31,
2006

3

$3,150

4

$1,875

Jan. 1 — Dec. 31,
2007

2

$5,200

3

$3,050

Jan. 1 — Dec. 31,
2008

1

$3,160*

2

$5,100

Jan. 1, 2004 —
Dec. 31, 2005

* If you elect to take the special depreciation allowance for
qualified trucks and vans placed in service in 2008, the limit
is $11,160.

Table 4 — Limits for Electric Passenger
Automobiles Placed in Service After
August 5, 1997, and Before January 1,
2007
AND the
number of
tax years in
which this
automobile
has been in
service is:

THEN the
limit on your
depreciation
and section
179 expense
deduction is:

Aug. 6, 1997 —
Dec. 31, 1998

4 or more

$5,425

Jan. 1, 1999 —
Dec. 31, 2002

4 or more

$5,325

Jan. 1 — Dec. 31,
2003

4 or more

$5,225

IF you placed
your electric
automobile in
service:

Jan. 1, 2004 —
Dec. 31, 2005
Jan. 1 — Dec. 31,
2006

4 or more

$5,125

3

$8,650

4

$5,225

Note. The limit for automobiles (including
trucks and vans) placed in service after
December 31, 2008, will be published in the
Internal Revenue Bulletin. These amounts
were not available at the time these
instructions were printed.
Column (i) — Elected section 179 cost.
Enter the amount you elect to expense for
section 179 property used more than 50% in
a qualified business use (subject to the
limits for passenger automobiles). Refer to
the instructions for Part I to determine if the
property qualifies under section 179.
You cannot elect to expense more than
$25,000 of the cost of any sport utility
vehicle (SUV) and certain other vehicles
placed in service during the tax year. This
rule applies to any 4-wheeled vehicle

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primarily designed or used to carry
passengers over public streets, roads, or
highways, that is rated at more than 6,000
pounds gross vehicle weight and not more
than 14,000 pounds gross vehicle weight.
However, the $25,000 limit does not apply to
any vehicle:
• Designed to seat more than nine persons
behind the driver’s seat,
• Equipped with a cargo area (either open
or enclosed by a cap) of at least six feet in
interior length that is not readily accessible
directly from the passenger compartment, or
• That has an integral enclosure fully
enclosing the driver compartment and load
carrying device, does not have seating
rearward of the driver’s seat, and has no
body section protruding more than 30 inches
ahead of the leading edge of the windshield.
Recapture of section 179 expense
deduction. If you used listed property
more than 50% in a qualified business use
in the year you placed the property in
service and used it 50% or less in a later
year, you may have to recapture in the later
year part of the section 179 expense
deduction. Use Form 4797 to figure the
recapture amount.

Section B
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.
Exception. Employers are not required to
complete lines 30 through 36 for vehicles
used by employees who are not more than
5% owners or related persons and for which
the question on line 37, 38, 39, 40, or 41 is
answered “Yes.”

Section C
Employers providing vehicles to their
employees satisfy the employer’s
substantiation requirements under section
274(d) by maintaining a written policy
statement that:
• Prohibits personal use including
commuting or
• Prohibits personal use except for
commuting.
An employee does not need to keep a
separate set of records for any vehicle that
satisfies these written policy statement
rules.
For both written policy statements, there
must be evidence that would enable the IRS
to determine whether use of the vehicle
meets the conditions stated below.

Line 37
A policy statement that prohibits personal
use (including commuting) must meet all of
the following conditions.
• The employer owns or leases the vehicle
and provides it to one or more employees
for use in the employer’s trade or business.
• When the vehicle is not used in the
employer’s trade or business, it is kept on
the employer’s business premises, unless it

is temporarily located elsewhere (e.g., for
maintenance or because of a mechanical
failure).
• No employee using the vehicle lives at the
employer’s business premises.
• No employee may use the vehicle for
personal purposes, other than de minimis
personal use (e.g., a stop for lunch between
two business deliveries).
• Except for de minimis use, the employer
reasonably believes that no employee uses
the vehicle for any personal purpose.

Line 38
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.
• The employer owns or leases the vehicle
and provides it to one or more employees
for use in the employer’s trade or business,
and it is used in the employer’s trade or
business.
• For bona fide noncompensatory business
reasons, the employer requires the
employee to commute to and/or from work
in the vehicle.
• The employer establishes a written policy
under which the employee may not use the
vehicle for personal purposes, other than
commuting or de minimis personal use (e.g.,
a stop for a personal errand between a
business delivery and the employee’s
home).
• Except for de minimis use, the employer
reasonably believes that the employee does
not use the vehicle for any personal purpose
other than commuting.
• The employer accounts for the commuting
use by including an appropriate amount in
the employee’s gross income.

Line 40
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.

Line 41
An automobile meets the requirements for
qualified demonstration use if the employer
maintains a written policy statement that:
• Prohibits its use by individuals other than
full-time automobile salespersons,
• Prohibits its use for personal vacation
trips,
• Prohibits storage of personal possessions
in the automobile, and
• Limits the total mileage outside the
salesperson’s normal working hours.

Attach any information the Code and
regulations may require to make a valid
election. See the applicable Code section,
regulations, and Pub. 535 for more
information.

Line 42
Complete line 42 only for those costs you
amortize for which the amortization period
begins during your tax year beginning in
2008.
Column (a) — Description of costs.
Describe the costs you are amortizing. You
can amortize the following.
Geological and geophysical
expenditures (section 167(h)). You must
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. For major integrated oil company (as
defined in section 167(h)(5)), the costs paid
or incurred after May 17, 2006, and before
December 20, 2007, must be amortized
ratably over a 5-year period (a 7-year period
for costs paid or incurred after December
19, 2007), 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
CAUTION pollution control facility that is
qualified property. However, you must
reduce the amount on which you figure your
amortization deduction by any special
depreciation 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 28.

Each year you can deduct part of certain
capital costs over a fixed period.

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.

If you amortize property, the part you
amortize does not qualify for the
CAUTION section 179 expense deduction or for
depreciation.

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

Part VI. Amortization

!

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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
CAUTION 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. This rule
does not apply to section 197 intangibles
disposed of for which the fair market value
exceeds the adjusted basis.
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 business start-up and organizational
costs paid or incurred after September 8,
2008, you can deduct a limited amount of
start-up or organizational costs for the year
that your business begins. You are not
required to attach a statement to make this
election. Once made, the election is

!

-14-

irrevocable. Any cost not deducted currently
must be amortized ratably over a 180-month
period. The amortization period starts with
the month you begin business operations.
See Temporary Regulations sections
1.195-1T and 1.248-1T.
For business start-up and organizational
costs paid or incurred after October 22,
2004, and before September 9, 2008, you
can elect to deduct a limited amount of
start-up and organizational costs. If the
election is made, you must attach any
statement required by Regulations sections
1.195-1(b) and 1.248-1(c). Any costs not
deducted currently can be amortized ratably
over a 180-month period, beginning with the
month you begin business.
Note. You can apply the provisions of
Temporary Regulations sections 1.195-1T
and 1.248-1T to all expenses paid or
incurred after October 22, 2004, provided
the period of limitations on assessment has
not expired for the year of the election.
Otherwise, the provisions under Regulations
sections 1.195-1(b) and 1.248-1(c) will
apply.
For business start-up and organizational
costs paid or incurred before October 23,
2004, you can elect an amortization period
of 60 months or more.
Attach any statements required by the
appropriate section and related regulations
to Form 4562 by the due date, including
extensions, of your return for the year in
which the active trade or business begins. If
you have both start-up and organizational
costs, attach a separate statement for each
type of cost. If you timely filed your 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 the return. Write
“Filed pursuant to section 301.9100-2” on
the amended return. See Pub. 535 for more
details.
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.
Column (b) — Date amortization begins.
Enter the date the amortization period
begins under the applicable Code section.
Column (c) — Amortizable amount.
Enter the total amount you are amortizing.
See the applicable Code section for limits on
the amortizable amount.
Column (d) — Code section. Enter the
Code section under which you amortize the
costs. For examples, see the Code sections

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referenced in the instructions for line 42,
column (a), above.
Column (f) — Amortization for this year.
Compute the amortization deduction by:
1. Dividing the amount in column (c) by
the number of months over which the costs
are to be amortized and multiplying the
result by the number of months in the
amortization period included in your tax year
beginning in 2008 or
2. Multiplying the amount in column (c)
by the percentage in column (e).

Line 43
If you are reporting the amortization of costs
that began before your 2008 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.

Line 44
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.
Paperwork Reduction Act Notice. We
ask for the information on this form to carry
out the Internal Revenue laws of the United
States. You are required to give us the
information. We need it to ensure that you
are complying with these laws and to allow
us to figure and collect the right amount of
tax.
You are not required to provide the
information requested on a form that is
subject to the Paperwork Reduction Act
unless the form displays a valid OMB control
number. Books or records relating to a form
or its instructions must be retained as long
as their contents may become material in
the administration of any Internal Revenue

-15-

law. Generally, tax returns and return
information are confidential, as required by
section 6103.
The time needed to complete and file this
form will vary depending on individual
circumstances. The estimated burden for
individual taxpayers filing this form is
approved under OMB control number
1545-0074 and is included in the estimates
shown in the instructions for their individual
income tax return. The estimated burden for
all other taxpayers who file this form is
shown below.
Recordkeeping, 38 hr., 29 min.;
Learning about the law or the form, 4 hr.,
16 min.;
Preparing and sending the form to the
IRS, 5 hr., 5 min.
If you have comments concerning the
accuracy of these time estimates or
suggestions for making this form simpler, we
would be happy to hear from you. See the
instructions for the tax return with which this
form is filed.

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Table A—General Depreciation System
Method: 200% declining balance switching to straight line
Convention: Half-year
If the recovery period is:
Year

3 years

5 years

7 years

10 years

1

33.33%

20.00%

14.29%

10.00%

2

44.45%

32.00%

24.49%

18.00%

3

14.81%

19.20%

17.49%

14.40%

4

7.41%

11.52%

12.49%

11.52%

5

11.52%

8.93%

9.22%

6

5.76%

8.92%

7.37%

7

8.93%

6.55%

8

4.46%

6.55%

9

6.56%

10

6.55%

11

3.28%

Table B—General and Alternative Depreciation System
Method: 150% declining balance switching to straight line
Convention: Half-year
If the recovery period is:
Year

5 years

7 years

10 years

12 years

15 years

1

15.00%

10.71%

7.50%

6.25%

5.00%

3.750%

2

25.50%

19.13%

13.88%

11.72%

9.50%

7.219%

3

17.85%

15.03%

11.79%

10.25%

8.55%

6.677%

4

16.66%

12.25%

10.02%

8.97%

7.70%

6.177%

5

16.66%

12.25%

8.74%

7.85%

6.93%

5.713%

6

8.33%

12.25%

8.74%

7.33%

6.23%

5.285%

20 years

7

12.25%

8.74%

7.33%

5.90%

4.888%

8

6.13%

8.74%

7.33%

5.90%

4.522%

9

8.74%

7.33%

5.91%

4.462%

10

8.74%

7.33%

5.90%

4.461%

11

4.37%

7.32%

5.91%

4.462%

12

7.33%

5.90%

4.461%

13

3.66%

5.91%

4.462%

14

5.90%

4.461%

15

5.91%

4.462%

16

2.95%

4.461%

17

4.462%

18

4.461%

19

4.462%

20

4.461%

21

4.462%

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Table C—General Depreciation System
Method: Straight line
Convention: Mid-month
Recovery period: 27.5 years
The month in the 1st recovery year the property is placed in service:
Year
1

1

2

3

4

5

6

7

8

9

10

11

12

3.485%

3.182%

2.879%

2.576%

2.273%

1.970%

1.667%

1.364%

1.061%

0.758%

0.455%

0.152%

2–9

3.636%

3.636%

3.636%

3.636%

3.636%

3.636%

3.636%

3.636%

3.636%

3.636%

3.636%

3.636%

10,12,14,16,18, 20, 22

3.637%

3.637%

3.637%

3.637%

3.637%

3.637%

3.636%

3.636%

3.636%

3.636%

3.636%

3.636%

11,13,15,17,19, 21, 23

3.636%

3.636%

3.636%

3.636%

3.636%

3.636%

3.637%

3.637%

3.637%

3.637%

3.637%

3.637%

Table D—General Depreciation System
Method: Straight line
Convention: Mid-month
Recovery period: 31.5 years
The month in the 1st recovery year the property is placed in service:
Year

1

2

3

4

5

6

7

8

9

10

11

12

13,15,17,19, 21, 23, 25

3.174%

3.175%

3.174%

3.175%

3.174%

3.175%

3.174%

3.175%

3.174%

3.175%

3.174%

3.175%

14,16,18, 20, 22, 24, 26

3.175%

3.174%

3.175%

3.174%

3.175%

3.174%

3.175%

3.174%

3.175%

3.174%

3.175%

3.174%

Table E—General Depreciation System
Method: Straight line
Convention: Mid-month
Recovery period: 39 years
The month in the 1st recovery year the property is placed in service:
Year

1

2

3

4

5

6

7

8

9

10

11

12

1

2.461%

2.247%

2.033%

1.819%

1.605%

1.391%

1.177%

0.963%

0.749%

0.535%

0.321%

0.107%

2–39

2.564%

2.564%

2.564%

2.564%

2.564%

2.564%

2.564%

2.564%

2.564%

2.564%

2.564%

2.564%

-17-

Description of Property

Date
Placed in
Service

Cost or
Other
Basis

Business/
Investment
Use %

Section
179
Deduction
and
Special
Allowance
Depreciation Prior
Years

Basis for
Depreciation

Depreciation Worksheet (Keep for your records.)

Method/
Convention

Recovery
Period

Rate or
Table
%
Depreciation
Deduction

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Page 19 of 19

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Index

A
Alternative Depreciation
System:
Basis for
depreciation . . . . . . . . . . . 10
Classification of
property . . . . . . . . . . . . . . . 10
Conventions . . . . . . . . . . . . . 10
Depreciation
deduction . . . . . . . . . . . . . 10
Placed in service
date . . . . . . . . . . . . . . . . . . . 10
Recovery period . . . . . . . . . 10
Alternative minimum tax . . . . 2
Amortization . . . . . . . . . . . . . . . 13
Amortizable amount . . . . . 14
Amortization
deduction . . . . . . . . . . . . . 15
Amortization of costs from
prior year . . . . . . . . . . . . . 15
Amortization of costs in
current year . . . . . . . . . . . 13
Applicable code
section . . . . . . . . . . . . . . . . 14
Certain bond
premiums . . . . . . . . . . . . . 13
Cost of acquiring a
lease . . . . . . . . . . . . . . . . . . 14
Creative property
costs . . . . . . . . . . . . . . . . . . 14
Date amortization
begins . . . . . . . . . . . . . . . . 14
Description of costs . . . . . 13
Forestation and
reforestation costs . . . . . 14
Geological and geophysical
expenditures . . . . . . . . . . 13
Optional section 59(e)
write-off . . . . . . . . . . . . . . . 14
Pollution control
facilities . . . . . . . . . . . . . . . 13
Research and experimental
expenditures . . . . . . . . . . 14
Revitalization
expenditures . . . . . . . . . . 14
Section 197
intangibles . . . . . . . . . . . . 14
Start-up and organizational
costs . . . . . . . . . . . . . . . . . . 14

C
Conventions:
Half-year . . . . . . . . . . . . . . . . . 9
Mid-month . . . . . . . . . . . . . . . . 9
Mid-quarter . . . . . . . . . . . . . . . 9
D
Definitions . . . . . . . . . . . . . . . . . . 1
Amortization . . . . . . . . . . . . . . 2
Commuting . . . . . . . . . . . . . . . 2
Depreciation . . . . . . . . . . . . . . 1
Listed property . . . . . . . . . . . 2
Listed property Exceptions . . . . . . . . . . . . . 2
Section 179 property . . . . . 2
Depreciation:
Accelerated Cost Recovery
System (ACRS) . . . . . . . . 6
Assets placed in service in
prior year . . . . . . . . . . . . . . 7
General asset
accounts . . . . . . . . . . . . . . . 7
Income forecast
method . . . . . . . . . . . . . . . . 6
Intangible property . . . . . . . . 6
Listed property . . . . . . . . . . 10
Modified Accelerated Cost
Recovery System
(MACRS) . . . . . . . . . . . . . . 7
Alternative Depreciation
System . . . . . . . . . . . . . 10
General Depreciation
System . . . . . . . . . . . . . . 7
Involuntary
conversion . . . . . . . . . . . 7
Like-kind exchange . . . . . 7
Other . . . . . . . . . . . . . . . . . . . . . 6
Depreciation methods:
Declining balance . . . . . . . . 9
Straight line . . . . . . . . . . . . . . 9
Depreciation tables . . . . 16-17
Depreciation
worksheet . . . . . . . . . . . . . . . 18
E
Election out:
Involuntary
conversion . . . . . . . . . . . . . 7
Like-kind exchange . . . . . . . 7
Special depreciation
allowance . . . . . . . . . . . . . . 6

G
General Depreciation System:
Basis for depreciation . . . . 8
Classification of
property . . . . . . . . . . . . . . . . 8
Conventions . . . . . . . . . . . . . . 9
Depreciation
deduction . . . . . . . . . . . . . . 9
Determining the
classification . . . . . . . . . . . 8
Placed in service date . . . . 8
Recovery period . . . . . . . . . . 9
I
Involuntary conversion . . . . . . 7
L
Like-kind exchange . . . . . . . . . 7
Listed property:
Basis for
depreciation . . . . . . . . . . . 11
Convention . . . . . . . . . . . . . . 11
Cost or other basis . . . . . . 11
Depreciation
deduction . . . . . . . . . . . . . 11
Information on vehicle
use . . . . . . . . . . . . . . . . . . . 13
Method . . . . . . . . . . . . . . . . . . 11
Passenger automobile
limits . . . . . . . . . . . . . . . . . . 12
Definitions . . . . . . . . . . . . 12
Exception . . . . . . . . . . . . . 12
Leasehold property
exception . . . . . . . . . . . 12
Tables . . . . . . . . . . . . . . . . 12
Percentage of business or
investment use . . . . . . . . 11
Placed in service
date . . . . . . . . . . . . . . . . . . . 11
Qualified business
use . . . . . . . . . . . . . . . . . . . 11
Questions for employers on
vehicle use . . . . . . . . . . . . 13
Recapture of section 179
expense
deduction . . . . . . . . . . . . . 13
Recovery period . . . . . . . . . 11
Section 179 expense
deduction . . . . . . . . . . . . . 12
Special depreciation
allowance . . . . . . . . . . . . . 11
Type of property . . . . . . . . . 11

-19-

R
Recapture:
Listed property . . . . . . 11, 13
MACRS depreciation . . . . 10
Section 179 expense
deduction . . . . . . . . . . 3, 13
Special depreciation
allowance . . . . . . . . . . . . . . 6
Recordkeeping . . . . . . . . . . . . . 2
S
Section 179 expense
deduction . . . . . . . . . . . . . . . . 2
Carryover of disallowed
deduction . . . . . . . . . . . . . . 4
Election . . . . . . . . . . . . . . . . . . 2
Limitations:
Maximum
deduction . . . . . . . . . . . . 3
Sport utility vehicle
(SUV) . . . . . . . . . . . . . . . 12
Taxable income . . . . . . . . 4
Threshold cost of
property . . . . . . . . . . . . . 3
Listed property . . . . . . . . . . 12
Recapture . . . . . . . . . . . . 3, 13
Revocation . . . . . . . . . . . . . . . 3
Special depreciation
allowance . . . . . . . . . . . . . . . . 4
Election out . . . . . . . . . . . . . . 6
Figuring the
allowance . . . . . . . . . . . . . . 6
Listed property . . . . . . . . . . 11
Qualified property . . . . . . . . 4
Recapture . . . . . . . . . . . . . . . . 6
U
Uniform capitalization
rules . . . . . . . . . . . . . . . . . . . . 10
Unit-of-production
method . . . . . . . . . . . . . . . . . . . 6
W
Where to find additional
information . . . . . . . . . . . . . . . 1
Who must file . . . . . . . . . . . . . . . 1

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