us internal revenue service: i4562--1998

8/14/2019 US Internal Revenue Service: i4562--1998

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1998 Department of the TreasuryInternal Revenue ServiceInstructions for Form 4562Depreciation and Amortization(Including Information on Listed Property)Section references are to the Internal Revenue Code unless otherwise noted.

Changes To Noteq For tax years beginning in 1998, themaximum section 179 expense

deduction has been increased to$18,500 ($38,500 for enterprise zonebusinesses).q If you elect under section 168(b)(5)to depreciate property placed inservice after 1998 using the 150%declining balance method, the GDSrecovery period is used instead of theADS recovery period. For moredetails, see the instructions for line

15, column (d) on page 4.General Instructions

Purpose of FormUse Form 4562 to:q Claim your deduction fordepreciation and amortization;q Make the election to expensecertain tangible property (section179); andq Provide information on thebusiness/investment use ofautomobiles and other listed property.

Who Must FileExcept as otherwise noted, completeand file Form 4562 if you are claimingany of the following.

q Depreciation for property placed inservice during the 1998 tax year.q A section 179 expense deduction(which may include a carryover froma previous year).q Depreciation on any vehicle orother listed property (regardless of

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However, do not file Form 4562 toreport depreciation and informationon the use of vehicles if you are anemployee deducting job-related

vehicle expenses using either thestandard mileage rate or actualexpenses. Instead, use Form 2106,Employee Business Expenses, orForm 2106-EZ, UnreimbursedEmployee Business Expenses, forthis purpose.

Submit a separate Form 4562 foreach business or activity on yourreturn. If you need more space,

attach additional sheets. However,complete only one Part I in its entiretywhen computing your allowablesection 179 expense deduction.

Definitions

Depreciation

Depreciation is the annual deductionallowed to recover the cost or other

basis of business or income-producing property with adeterminable useful life of more than1 year. However, land is notdepreciable.

Depreciation starts when you firstuse the property in your business orfor the production of income. It endswhen you take the property out ofservice, deduct all your depreciable

cost or other basis, or no longer usethe property in your business or forthe production of income.

Amortization

Amortization is similar to the straightline method of depreciation in that anannual deduction is allowed to

q Any other property used fortransportation if the nature of theproperty lends itself to personal use,such as motorcycles, pick-up trucks,

etc.q Any property used forentertainment or recreationalpurposes (such as photographic,phonographic, communication, andvideo recording equipment).q Cellular telephones (or other similartelecommunications equipment).q Computers or peripheralequipment.

Exception. Listed property does notinclude (a) photographic,phonographic, communication, orvideo equipment used exclusively ina taxpayer's trade or business or atthe taxpayer's regular businessestablishment; (b) any computer orperipheral equipment usedexclusively at a regular businessestablishment and owned or leased

by the person operating theestablishment; or (c) an ambulance,hearse, or vehicle used fortransporting persons or property forhire. For purposes of the precedingsentence, a portion of the taxpayer'shome is treated as a regular businessestablishment only if that portionmeets the requirements under section280A(c)(1) for deducting expenses

attributable to the business use of ahome. However, for any propertylisted under (a) above, the regularbusiness establishment of anemployee is his or her employer'sregular business establishment.

Recordkeeping


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Because Form 4562 does notprovide for permanent recordkeeping,you may use the depreciationworksheet on page 12 to assist youin maintaining depreciation records.However, the worksheet is designedonly for Federal income tax purposes.You may need to keep additionalrecords for accounting and stateincome tax purposes.

Specific Instructions

Part I

Caution: An estate or trust cannotmake this election.

You may elect to expense part ofthe cost of certain tangible personalproperty used in your trade orbusiness and certain other propertydescribed in section 1245(a)(3). Todo so, you must have:q Purchased the property (as definedin section 179(d)(2)) andq

Placed it in service during the 1998tax year.You must make the election with:1. The original return you file for

the tax year the property was placedin service (whether or not you fileyour return on time), or

2. An amended return filed no laterthan the due date (includingextensions) for your return for the tax

year the property was placed inservice.Once made, the election (and the

selection of the property you elect toexpense) may not be revoked withoutIRS consent.

If you elect this deduction, reducethe amount on which you figure yourdepreciation or amortizationdeduction by the section 179 expense

deduction.Section 179 property does not

include:1. Property used 50% or less in

your trade or business.2. Property held for investment

(section 212 property).

162 (except rents and reimbursedamounts) is more than 15% of therental income from the property.

4. Property used mainly outside theUnited States (except for propertydescribed in section 168(g)(4)).

5. Property used for lodging or forfurnishing the lodging (except asprovided in section 50(b)(2)).

6. Property used by a tax-exemptorganization (other than a section 521farmers' cooperative) unless theproperty is used mainly in a taxableunrelated trade or business.

7. Property used by agovernmental unit or foreign person

or entity (except for property usedunder a lease with a term of less than6 months).

8. Air conditioning or heating units.The section 179 expense deduction

is subject to two separate limitations:a dollar limitation and a taxableincome limitation. Both limitations arefigured in Part I.

For a partnership, these limitations

apply to the partnership and eachpartner, but for an electing largepartnership (as defined in section775), the limitations apply only to thepartnership. For an S corporation,these limitations apply to the Scorporation and each shareholder.For a controlled group, all componentmembers are treated as onetaxpayer.

For more details on the section 179expense deduction, see Pub. 946,How To Depreciate Property.

Line 1

For an enterprise zone business, themaximum section 179 expensededuction of $18,500 is increased bythe smaller of:q $20,000 orq The cost of section 179 propertythat is also qualified zone property(including such property placed inservice by your spouse, even if youare filing a separate return).

Cross out the preprinted entry online 1 and enter in the margin thelarger amount if your business is an

year, the benefit of the increasedsection 179 expense deduction mustbe reported as other income on yourreturn.

Line 2

Enter the cost of all section 179property placed in service during thetax year. Include amounts from anylisted property from Part V. Alsoinclude any section 179 propertyplaced in service by your spouse,even if you are filing a separatereturn.

For an enterprise zone business,include on this line only 50% of thecost of section 179 property that isalso qualified zone property.

Line 5

If line 5 is zero, you cannot elect toexpense any property. Skip lines 6through 11, enter zero on line 12, andenter the carryover of any disalloweddeduction from 1997 on line 13.

If you are married filing separately,you and your spouse must allocatethe dollar limitation for the tax year.To do so, multiply the total limitationthat you would otherwise enter on line5 by 50%, unless you both elect adifferent allocation. If you both electa different allocation, multiply the totallimitation by the percentage elected.The sum of the percentages you andyour spouse elect must equal 100%.Do not enter on line 5 more than your

share of the total dollar limitation.

Line 6

Caution: Do notinclude any listedproperty on line 6.

Column (a). Enter a brief descriptionof the property for which you aremaking the election (e.g., truck, officefurniture, etc.).Column (b). Enter the cost of theproperty. If you acquired the propertythrough a trade-in, do not include anyundepreciated basis of the assets youtraded in. See Pub. 551, Basis ofAssets, for more details.Column (c). Enter the amount youelect to expense. You do not have to

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Line 10

The carryover of disallowed deductionfrom 1997 is the amount of section179 property, if any, you elected toexpense in previous years, but notallowed as a deduction due to the

business income limitation. If you filedForm 4562 for 1997, enter theamount from line 13 of your 1997Form 4562. For additional details, seePub. 946.

Line 11

The section 179 expense deductionis further limited to the businessincome limitation under section

179(b)(3).For purposes of the rules thatfollow:q If you have to apply another Codesection that has a limitation based ontaxable income, see Regulationssection 1.179-2(c)(5) for rules on howto apply the business incomelimitation under section 179 in such acase.

q You are considered to activelyconduct a trade or business if youmeaningfully participate in itsmanagement or operations. A merepassive investor is not considered toactively conduct a trade or business.Individuals. Enter the smaller of line5 or the aggregate taxable incomefrom any trade or business youactively conducted, computed without

regard to any section 179 expensededuction, the deduction for one-halfof self-employment taxes undersection 164(f), or any net operatingloss deduction. Include in aggregatetaxable income the wages, salaries,tips, and other compensation youearned as an employee (not reducedby unreimbursed employee businessexpenses). If you are married filing a

joint return, combine the aggregatetaxable incomes for you and yourspouse.Partnerships. Enter the smaller ofline 5 or the aggregate of thepartnership's items of income andexpense described in section 702(a)from any trade or business the

corporation actively conducted (otherthan credits, tax-exempt income, thesection 179 expense deduction, andthe deduction for compensation paidto the corporation's shareholder-employees).

Corporations other than Scorporations. Enter the smaller ofline 5 or the corporation's taxableincome before the section 179expense deduction, net operating lossdeduction, and special deductions(excluding items not derived from atrade or business actively conductedby the corporation).

Line 12

The limitations on lines 5 and 11apply to the taxpayer, and not to eachseparate business or activity.Therefore, if you have more than onebusiness or activity, you may allocateyour allowable section 179 expensededuction among them.

To do so, write Summary at thetop of Part I of the separate Form4562 you are completing for the

aggregate amounts from allbusinesses or activities. Do notcomplete the rest of that form. On line12 of the Form 4562 you prepare foreach separate business or activity,enter the amount allocated to thebusiness or activity from theSummary. No other entry is requiredin Part I of the separate Form 4562prepared for each business or

activity.

Part IIThe term Modified Accelerated CostRecovery System (MACRS) includesthe General Depreciation System andthe Alternative Depreciation System.Generally, MACRS is used todepreciate any tangible propertyplaced in service after 1986.However, MACRS does not apply tofilms, videotapes, and soundrecordings. See section 168(f) forother exceptions. For more details onMACRS, see Pub. 946. Forinformation on other methods ofdepreciation, see Pub. 534,D i ti P t Pl d i

Section A

Line 14

To simplify the computation ofMACRS depreciation, you may electto group assets into one or more

general asset accounts under section168(i)(4). The assets in each generalasset account are depreciated as asingle asset.

Each account must include onlyassets that were placed in serviceduring the same tax year with thesame asset class (if any),depreciation method, recovery period,and convention. However, an asset

cannot be included in a general assetaccount if the asset is used both forpersonal purposes andbusiness/investment purposes.

When an asset in an account isdisposed of, the amount realizedgenerally must be recognized asordinary income. The unadjusteddepreciable basis and depreciationreserve of the general asset accountare not affected as a result of adisposition.

Special rules apply to passengerautomobiles, assets generatingforeign source income, assetsconverted to personal use, andcertain asset dispositions. For moredetails, see Regulations section1.168(i)-1.

To make the election, check the

box on line 14. You must make theelection on your return filed no laterthan the due date (includingextensions) for the tax year in whichthe assets included in the generalasset account were placed in service.Once made, the election isirrevocable and applies to the taxyear for which the election is madeand all later tax years.

Section B

Lines 15a Through 15i

Use lines 15a through 15i only forassets placed in service during thetax year beginning in 1998 anddepreciated under the GeneralDepreciation System (GDS) except


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some property are shown below. Forproperty not shown, see Determiningthe classification on this page.

3-year property includes:q A race horse that is more than 2years old at the time it is placed in

service.q Any horse (other than a race horse)that is more than 12 years old at thetime it is placed in service.q Any qualified rent-to-own property(as defined in section 168(i)(14)).

5-year property includes:q Automobiles.q Light general purpose trucks.q

Typewriters, calculators, copiers,and duplicating equipment.q Any semi-conductor manufacturingequipment.q Any computer or peripheralequipment.q Any section 1245 property used inconnection with research andexperimentation.q Certain energy property specified in

section 168(e)(3)(B)(vi).7-year property includes:

q Office furniture and equipment.q Appliances, carpets, furniture, etc.,used in residential rental property.q Railroad track.q Any property that does not have aclass life and is not otherwiseclassified.

10-year property includes:q Vessels, barges, tugs, and similarwater transportation equipment.q Any single purpose agricultural orhorticultural structure (see section168(i)(13)).q Any tree or vine bearing fruit ornuts.

15-year property includes:q Any municipal wastewatertreatment plant.q Any telephone distribution plant andcomparable equipment used for2-way exchange of voice and datacommunications.q Any section 1250 property that is aretail motor fuels outlet (whether or

q Property that is an integral part ofthe gathering, treatment, orcommercial distribution of water, that,without regard to this classification,would be 20-year property.q Municipal sewers. This

classification applies to propertyplaced in service after June 12, 1996,except for property placed in serviceunder a binding contract in effect atall times since June 9, 1996.

Residential rental property is abuilding in which 80% or more of thetotal rent is from dwelling units.

Nonresidential real property isany real property that is neither

residential rental property norproperty with a class life of less than27.5 years.

50-year property includes anyimprovements necessary to constructor improve a roadbed or right-of-wayfor railroad track that qualifies as arailroad grading or tunnel bore undersection 168(e)(4).

There is no separate line to report

50-year property. Therefore, attacha statement showing the sameinformation as required in columns (a)through (g). Include the deduction inthe line 21 Total and write Seeattachment in the bottom margin ofthe form.Determining the classification. Ifyour depreciable property is not listedabove, determine the classification as

follows.1. Find the property's class life.See the Table of Class Lives andRecovery Periods in Pub. 946.

2. Use the following table to findthe classification in column (b) thatcorresponds to the class life of theproperty in column (a).

Column (b) For lines 15h and 15i

use. From that result, subtract anysection 179 expense deduction,deduction for removal of barriers tothe disabled and the elderly, disabledaccess credit, and enhanced oilrecovery credit. See section 50(c) todetermine the basis adjustment forinvestment credit property.Column (d). Determine the recoveryperiod from the table below, unlesseither 1 or 2 below applies.

1. You make an irrevocableelection to use the 150% decliningbalance method of depreciation for3-, 5-, 7-, or 10-year property(excluding any tree or vine bearingfruit or nuts). The election applies toall property within the classification forwhich it is made that was placed inservice during the tax year. If youelect this method for property placedin service before 1999, you must usethe recovery period under theAlternative Depreciation System(ADS) discussed in the line 16instructions. For property placed inservice after 1998, use the GDS

recovery period (shown in the tablebelow). You will not have anadjustment for alternative minimumtax purposes on the property forwhich you make this election.

2. You acquired qualified Indianreservation property (as defined insection 168(j)(4)). Qualified Indianreservation property does not includeproperty placed in service to conduct

class I, II, or III gaming activities. SeePub. 946 for the table for qualifiedIndian reservation property.

Recovery Period for Most Property

In the case of:The recovery

period is:3-year property............................ 3 yrs.5-year property............................ 5 yrs.

(a) (b) 7-year property............................ 7 yrs.

Class life (in years) Classification 10-year property.......................... 10 yrs.(See Pub. 946) 15-year property.......................... 15 yrs.20-year property.......................... 20 yrs.4 or less................................. 3-year property25-year property.......................... 25 yrs.More than 4 but less than 10. 5-year propertyResidential rental property.......... 27.5 yrs.10 or more but less than 16 .. 7-year propertyNonresidential real propertyplaced in service before May 13,1993............................................. 31.5 yrs.

16 or more but less than 20.. 10-year property20 or more but less than 25.. 15-year property25 or more ............................. 20-year property

Nonresidential real propertyplaced in service after May 12


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either placed in service or disposedof. There are three types ofconventions. To select the correctconvention, you must know when youplaced the property in service and thetype of property.

Half-year convention (HY). Thisconvention applies to all propertyreported on lines 15a through 15g,unless the mid-quarter conventionapplies. It does not apply toresidential rental property,nonresidential real property, andrailroad gradings and tunnel bores.It treats all property placed in service(or disposed of) during any tax yearas placed in service (or disposed of)

on the midpoint of that tax year.Mid-quarter convention (MQ). If

the aggregate bases of propertysubject to depreciation under section168 and placed in service during thelast 3 months of your tax year exceed40% of the aggregate bases ofproperty subject to depreciation undersection 168 and placed in serviceduring the entire tax year, the

mid-quarter, instead of the half-year,convention applies.

In determining whether themid-quarter convention applies, donot take into account the following:q Property that is being depreciatedunder the pre-1987 rules.q Any residential rental property,nonresidential real property, orrailroad gradings and tunnel bores.q Property that is placed in serviceand disposed of within the same taxyear.

The mid-quarter convention treatsall property placed in service (ordisposed of) during any quarter asplaced in service (or disposed of) onthe midpoint of that quarter. However,no depreciation is allowed under thisconvention for property that is placedin service and disposed of within thesame tax year.

Mid-month convention (MM).This convention applies ONLY toresidential rental property,nonresidential real property (lines 15hor 15i), and railroad gradings and

otherwise stated below, theapplicable method for 3-, 5-, 7-, and10-year property is the 200%declining balance method, switchingto the straight line method in the firsttax year that maximizes thedepreciation allowance.

For 15- and 20-year property,property used in a farming business,and property for which you elected touse the 150% declining balancemethod, the applicable method is the150% declining balance method,switching to the straight line methodin the first tax year that maximizes thedepreciation allowance.

For water utility property, residentialrental property, nonresidential realproperty, any railroad grading ortunnel bore, or any tree or vinebearing fruit or nuts, the onlyapplicable method is the straight linemethod.

You may also make an irrevocableelection to use the straight linemethod for all property within aclassification that is placed in serviceduring the tax year.

Enter 200 DB for 200% decliningbalance, 150 DB for 150% decliningbalance, or S/L for straight line.Column (g). To compute thedepreciation deduction you may useoptional Tables A through E, startingon page 10. To do this, multiply theapplicable rate from the appropriatetable by the property's unadjustedbasis (column (c)). See Pub. 946 forcomplete tables. If you disposed ofthe property during the current taxyear, multiply the result by theapplicable decimal amount from thetables in step 3 below. Or you maycompute the deduction yourself bycompleting the following steps:

Step 1. Determine the depreciationrate as follows.q 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 150DB) by the number of years in therecovery period in column (d). Forexample, for property depreciated

year (but not less than one). Forexample, if there are 61/2 yearsremaining in the recovery period asof the beginning of the year, divide1.00 by 6.5 for a rate of 15.38%.

Step 2. Multiply the percentagerate determined in Step 1 by theproperty's unrecovered basis (basisfor depreciation (as defined in column(c)) reduced by all prior year'sdepreciation).

Step 3. For property placed inservice or disposed of during thecurrent tax year, multiply the resultfrom Step 2 by the applicable decimalamount from the tables below (basedon the convention shown in column(e)).

Short tax years. See Pub. 946 forrules on how to compute thedepreciation deduction for property

placed in service in a short tax year.Section C

Lines 16a Through 16c

Complete lines 16a through 16c forassets, other than automobiles andother listed property, placed in serviceONLY d i th t b i i

Half-year (HY) convention......................... 0.5

Mid-quarter (MQ) convention

Placed in service(or disposed of) duringthe:

Placedin service

Disposedof

1st quarter .................. 0.875 0.1252nd quarter ................. 0.625 0.375

3rd quarter.................. 0.375 0.6254th quarter .................. 0.125 0.875

Mid-month (MM) convention

Placed in service(or disposed of) duringthe:

Placedin service

Disposedof

1st month.................... 0.9583 0.04172nd m onth . ................. 0.8750 0.12503rd month . .................. 0.7917 0.20834th month ................... 0.7083 0.2917

5th month ................... 0.6250 0.37506th month ................... 0.5417 0.45837th month ................... 0.4583 0.54178th month ................... 0.3750 0.62509th month ................... 0.2917 0.708310th m onth ................. 0.2083 0.791711th m onth ................. 0.1250 0.875012th m onth ................. 0.0417 0.9583


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q Tangible property usedpredominantly outside the UnitedStates.q Tax-exempt use property.q Tax-exempt bond financedproperty.q

Imported property covered by anexecutive order of the President ofthe United States.q Property used predominantly in afarming business and placed inservice during any tax year in whichyou made an election under section263A(d)(3).

Instead of depreciating propertyunder GDS (line 15), you may make

an irrevocable election with respect toany classification of property for anytax year to use ADS. For residentialrental and nonresidential realproperty, you may make this electionseparately for each property.Column (a). Use the following rulesto determine the classification of theproperty under ADS.

Class life. Under ADS, the

depreciation deduction for mostproperty is based on the property'sclass life. See the Table of ClassLives and Recovery Periods in Pub.946. Use line 16a for all propertydepreciated under ADS, exceptproperty that does not have a classlife, residential rental andnonresidential real property, waterutility property, and railroad gradings

and tunnel bores.See section 168(g)(3) for specialrules for determining the class life forcertain property.

12-year property. Use line 16b forproperty that does not have a classlife.

40-year property. Use line 16c forresidential rental and nonresidentialreal property.

Water utility property andrailroad gradings and tunnel bores.These assets are 50-year propertyunder ADS. There is no separate lineto report 50-year property. Therefore,attach a statement showing the sameinformation required in columns (a)through (g) Include the deduction in

Column (c). See the instructions forline 15, column (c).Column (d). On line 16a, enter theproperty's class life.Column (e). Under ADS, theapplicable conventions are the same

as those used under GDS. See theinstructions for line 15, column (e).Column (g). Compute thedepreciation deduction in the samemanner as under GDS, except usethe straight line method over the ADSrecovery period and use theapplicable convention.

Part III

Do not use Part III for automobilesand other listed property. Instead,report this property in Part V on page2 of Form 4562.

Line 17

For tangible property placed inservice in tax years beginning before1998 and depreciated under MACRS,enter the GDS and ADS deductions

for the current year. To compute thedeductions, see the instructions forcolumn (g), line 15.

Line 18

Report property that you elect, undersection 168(f)(1), to depreciate underthe unit-of-production method or anyother method not based on a term ofyears (other than the retirement-

replacement-betterment method).Attach a separate sheet showing:q A description of the property andthe depreciation method you electthat excludes the property from ACRSor MACRS.q The depreciable basis (cost orother basis reduced, if applicable, bysalvage value, any section 179expense deduction, deduction for

removal of barriers to the disabledand the elderly, disabled accesscredit, and enhanced oil recoverycredit).

See section 50(c) to determine thebasis adjustment for investment creditproperty.

q Certain public utility property, whichdoes not meet certain normalizationrequirements.q Certain property acquired fromrelated persons.q Property acquired in certain

nonrecognition transactions.q Certain sound recordings, movies,and videotapes.q Property depreciated under theincome forecast method. The use ofthe income forecast method is limitedto motion picture films, videotapes,sound recordings, copyrights, books,and patents. You cannot use thismethod to depreciate any amortizable

section 197 intangible. See page 9 formore details on section 197intangibles.Note: If you use the income forecastmethod for any property placed inservice after September 13, 1995,you may owe or be entitled to arefund for the 3rd and 10th tax yearsbeginning after the tax year theproperty was placed in service. For

more details, getForm 8866, InterestComputation Under the Look-BackMethod for Property DepreciatedUnder the Income Forecast Method.q Intangible property, other thansection 197 intangibles, including:

1. Computer software. Use thestraight line method over 36 months.

2. Any right to receive tangibleproperty 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 abusiness.

4. Residential mortgage servicingrights. Use the straight line methodover 108 months.

See section 167(f) for more details.Prior years' depreciation, plus

current year's depreciation, can neverexceed the depreciable basis of theproperty.

The basis and amounts claimed fordepreciation should be part of yourpermanent books and records. Noattachment is necessary.


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shareholders on the appropriate lineof their Schedules K-1.

Line 22

If you are subject to the uniformcapitalization rules of section 263A,enter the increase in basis from costsyou must capitalize. For a detaileddiscussion of who is subject to theserules, which costs must becapitalized, and allocation of costsamong activities, see Regulationssection 1.263A-1.

Part VIf you claim the standard mileage

rate, actual vehicle expenses(including depreciation), ordepreciation on other listed property,you must provide the informationrequested in Part V, regardless of thetax year the property was placed inservice. However, if you file Form2106, 2106-EZ, or Schedule C-EZ(Form 1040), report this informationon that form and not in Part V. Also,if you file Schedule C (Form 1040)and are claiming the standardmileage rate or actual vehicleexpenses (except depreciation), andyou are not required to file Form 4562for any other reason, report vehicleinformation in Part IV of Schedule Cand not on Form 4562.

Section A

Lines 24 and 25Qualified business use. Todetermine whether to use line 24 orline 25 to report your listed property,you must first determine thepercentage of qualified business usefor each property. Generally, aqualified business use is any use inyour trade or business. However, itdoes not include any of the following:

q Investment use.q Leasing the property to a 5% owneror related person.q The use of the property ascompensation for services performedby a 5% owner or related person.q The use of the property as

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the aircraft by a 5% owner or relatedperson is treated as a qualifiedbusiness use.

Determine your percentage ofqualified business use similar to themethod used to figure thebusiness/investment use percentagein column (c). Your percentage ofqualified business use may besmaller than the business/investmentuse percentage.

For more information, see Pub.946.Column (a). List on aproperty-by-property basis all yourlisted property in the following order:

1. Automobiles and other vehicles;and2. Other listed property (computers

and peripheral equipment, etc.).In column (a), list the make and

model of automobiles, and give ageneral description of other listedproperty.

If you have more than five vehiclesused 100% for business/investment

purposes, you may group them by taxyear. Otherwise, list each vehicleseparately.Column (b). Enter the date theproperty was placed in service. Ifproperty held for personal use isconverted to business/investmentuse, treat the property as placed inservice on the date of conversion.Column (c). Enter the percentage

of business/investment use. Forautomobiles and other vehicles,determine this percentage by dividingthe number of miles the vehicle isdriven for trade or business purposesor for the production of income duringthe year (not to include anycommuting mileage) by the totalnumber of miles the vehicle is drivenfor all purposes. Treat vehicles used

by employees as being used 100%for business/investment purposes ifthe value of personal use is includedin the employees' gross income, orthe employees reimburse theemployer for the personal use.

Employers who report the amountof personal use of the vehicle in the

is actually used. See TemporaryRegulations section 1.280F-6T.

If during the tax year you convertproperty used solely for personalpurposes to business/investment use,figure the percentage ofbusiness/investment use only for thenumber of months you use theproperty in your business or for theproduction of income. Multiply thatpercentage by the number of monthsyou use the property in your businessor for the production of income, anddivide the result by 12.Column (d). Enter the property'sactual cost (including sales tax) orother basis (unadjusted for prioryears' depreciation). If you traded inold property, your basis is theadjusted basis of the old property(figured as if 100% of the property'suse had been for business/investmentpurposes) plus any additional amountyou paid for the new property.

For a vehicle, reduce your basis byany diesel-powered highway vehiclecredit, qualified electric vehicle credit,or deduction for clean-fuel vehiclesyou claimed.

If you converted the property frompersonal use to business/investmentuse, your basis for depreciation is thesmaller of the property's adjustedbasis or its fair market value on thedate of conversion.Column (e). Multiply column (d) bythe percentage in column (c). Fromthat result, subtract any section 179expense deduction and half of anyinvestment credit taken before 1986(unless you took the reduced credit).For automobiles and other listedproperty placed in service after 1985(i.e., transition property), reduce thedepreciable basis by the entireinvestment credit.Column (f). Enter the recovery

period. For property placed in serviceafter 1986 and used more than 50%in a qualified business use, use thetable in the line 15, column (d)instructions. For property placed inservice after 1986 and used 50% orless in a qualified business use,d i t th t i th


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half-year, mid-month, or mid-quarterconventions, respectively. Forproperty placed in service before1987, write PRE if you used theprescribed percentages under ACRS.If you elected an alternatepercentage, enter S/L.Column (h). See Limits forpassenger automobiles belowbefore entering an amount incolumn (h).

For property used more than 50%in a qualified business use (line 24)and placed in service after 1986,figure column (h) by following theinstructions for line 15, column (g). Ifplaced in service before 1987,multiply column (e) by the applicablepercentage given in Pub. 534 forACRS property. If the recovery periodfor an automobile ended before yourtax year beginning in 1998, enter yourunrecovered basis, if any, incolumn (h).

For property used 50% or less in aqualified business use (line 25) andplaced in service after 1986, figure

column (h) by dividing column (e) bycolumn (f) and using the sameconventions as discussed in theinstructions for line 15, column (e).The amount in column (h) cannotexceed the property's unrecoveredbasis. If the recovery period for anautomobile ended before your taxyear beginning in 1998, enter yourunrecovered basis, if any, incolumn

(h). For computers placed in servicein a tax year beginning in 1986,multiply column (e) by 4.167%.

For property placed in servicebefore 1987 that was disposed ofduring the year, enter zero.Limits for passenger automobiles.The depreciation deduction plussection 179 expense deduction forpassenger automobiles is limited for

any tax year.Definition. Passenger

automobiles are 4-wheeled vehiclesmanufactured primarily for use onpublic roads that are rated at 6,000pounds unloaded gross vehicleweight or less. For a truck or van,

hi l i ht i b tit t d f

For any passenger automobile youlist on line 24 or line 25, the total ofcolumns (h) and (i) for thatautomobile cannot exceed the limitshown in the tables below. The limitis further reduced when thebusiness/investment use percentage

is less than 100%.Example. If an automobile placed

in service in 1998 is used 60% forbusiness/investment purposes, thelimit generally is figured as follows:$3,160 60% = $1,896. However,the $3,160 limit is increased forcertain clean-fuel and electricvehicles. See the footnote below.

Limits for Passenger Automobiles Placedin Service Before 1995

IF you placed yourautomobile in service:

THEN thelimit on yourdepreciationand section179 expensededuction is:

June 19Dec. 31, 1984

Jan. 1Apr. 2, 1985

Apr. 3, 1985Dec. 31, 1986

Jan. 1, 1987Dec. 31, 1990

Jan. 1, 1991Dec. 31, 1992

Jan. 1, 1993Dec. 31, 1994

$6,000

$6,200

$4,800

$1,475

$1,575

$1,675

Limits for Passenger Automobiles Placedin Service After 1994

IF you placedyour automobile

in service:

THEN thelimit on yourdepreciation

and section179 expensededuction is:

AND thenumber of

tax years inwhich this

automobilehas been inservice is:

Jan. 1, 1995Dec. 31, 1996

After Dec. 31,1998

3

4 or more

1

2

1

$2,950

$1,775

$3,160 *

$5,000 *

*, * *

*For vehicles placed in service after August 5, 1997:

This limit does not apply to the cost of anyqualified clean-fuel vehicle property (such asretrofit parts and components) installed on avehicle for the purpose of permitting that vehicleto run on a clean-burning fuel. See section 179Afor definitions.

3

2 $5,000 *

$3,050 *

Jan. 1 Dec. 31,1997

Jan. 1 Dec. 31,1998

Column (i). Enter the amount youchoose to expense for section 179property used more than 50% in aqualified business use (subject to thelimits for passenger automobilesnoted above). Refer to the Part Iinstructions to determine if the

property qualifies under section 179.Be sure to include the total cost ofsuch property (50% of the cost ifqualified zone property placed inservice by an enterprise zonebusiness) on line 2, page 1.Recapture of depreciation andsection 179 expense deduction.For listed property used more than50% in a qualified business use in the

year placed in service and used 50%or less in a later year, you may haveto recapture in the later year part ofthe depreciation and section 179expense deduction. Use Form 4797,Sales of Business Property, to figurethe recapture amount.

Section B

Except as noted below, you must

complete items 28 through 34 foreach vehicle identified in Section A.Employees must provide theiremployers with the informationrequested in items 28 through 34 foreach automobile or vehicle providedfor their use.Exception. Employers are notrequired to complete items 28 through34 for vehicles used by employees

who are not more than 5% owners orrelated persons and for whichquestion 35, 36, 37, 38, or 39 isanswered Yes.

Section C

For employers providing vehicles totheir employees, two types of writtenpolicy statements will satisfy theemployer's substantiation

requirements under section 274(d):q A policy statement that prohibitspersonal use including commuting,andq A policy statement that prohibitspersonal use except for commuting.

An employee does not need tokeep a separate set of records for any


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employees for use in the employer'strade or business.q When the vehicle is not used in theemployer's trade or business, it iskept on the employer's businesspremises, unless it is temporarilylocated elsewhere (e.g., formaintenance or because of amechanical failure).q No employee using the vehicle livesat the employer's business premises.q No employee may use the vehiclefor personal purposes, other than deminimis personal use (e.g., a stop forlunch between two businessdeliveries).q

Except for de minimis use, theemployer reasonably believes that noemployee uses the vehicle for anypersonal purpose.

Line 36

A policy statement that prohibitspersonal use (except for commuting)is not available if the commutingemployee is an officer, director, or 1%or more owner. This policy must meetall of the following conditions:q The employer owns or leases thevehicle and provides it to one or moreemployees for use in the employer'strade or business, and it is used in theemployer's trade or business.q For bona fide noncompensatorybusiness reasons, the employerrequires the employee to commute toand/or from work in the vehicle.q The employer establishes a writtenpolicy under which the employee maynot use the vehicle for personalpurposes, other than commuting orde minimis personal use (e.g., a stopfor a personal errand between abusiness delivery and the employee'shome).q Except for de minimis use, theemployer reasonably believes that theemployee does not use the vehicle forany personal purpose other thancommuting.q The employer accounts for thecommuting use by including anappropriate amount in the employee'sgross income.

vehicles. Instead, the employer mustobtain the information from itsemployees and retain the informationreceived.

Line 39

An automobile meets the

requirements for qualifieddemonstration use if the employermaintains a written policy statementthat:q Prohibits its use by individuals otherthan full-time automobilesalespersons.q Prohibits its use for personalvacation trips.q Prohibits storage of personalpossessions in the automobile.q Limits the total mileage outside thesalesperson's normal working hours.

Part VIEach year you may elect to deductpart of certain capital costs over afixed period. If you amortize property,the part you amortize does not qualify

for the election to expense certaintangible property or for depreciation.For individuals reporting

amortization of bond premium forbonds acquired before October 23,1986, do not report the deductionhere. See the instructions forSchedule A (Form 1040), line 27.

For taxpayers (other thancorporations) claiming a deduction for

amortization of bond premium forbonds acquired after October 22,1986, but before January 1, 1988, thededuction is treated as interestexpense and is subject to theinvestment interest limitations. UseForm 4952, Investment InterestExpense Deduction, to compute theallowable deduction.

For taxable bonds acquired after

1987, the amortization offsets theinterest income. See Pub. 550,Investment Income and Expenses.

Line 40

Complete line 40 only for those costsfor which the amortization periodbegins during your tax year beginning

q The cost of acquiring a lease(section 178).q Qualified forestation andreforestation costs (section 194).q Business start-up expenditures(section 195).q

Organizational expenditures for acorporation (section 248) orpartnership (section 709).q Optional write-off of certain taxpreferences over the period specifiedin section 59(e).q Certain section 197 intangibles,which generally include the following:

1. Goodwill.2. Going concern value.

3. Workforce in place.4. Business books and records,

operating systems, or any otherinformation base.

5. Any patent, copyright, formula,process, design, pattern, knowhow,format, or similar item.

6. Any customer-based intangible(e.g., composition of market or market

share).7. Any supplier-based intangible.8. Any license, permit, or other

right granted by a governmental unit.9. Any covenant not to compete

entered into in connection with theacquisition of a business.

10. Any franchise (other than asports franchise), trademark, or tradename.

Section 197 intangibles must beamortized over 15 years starting withthe month the intangibles wereacquired.Column (b). Enter the date theamortization period begins under theapplicable Code section.Column (c). Enter the total amountyou are amortizing. See theapplicable Code section for limits onthe amortizable amount.Column (d). Enter the Code sectionunder which you amortize the costs.Column (f). Compute theamortization deduction by:

1. Dividing column (c) by thenumber of months over which the


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Paperwork Reduction Act Notice.We ask for the information on thisform to carry out the Internal Revenuelaws of the United States. You arerequired to give us the information.We need it to ensure that you are

complying with these laws and toallow us to figure and collect the rightamount of tax.

You are not required to provide theinformation requested on a form thatis subject to the Paperwork ReductionAct unless the form displays a valid

OMB control number. Books orrecords relating to a form or itsinstructions must be retained as longas their contents may becomematerial in the administration of anyInternal Revenue law. Generally, taxreturns and return information are

confidential, as required by section6103.

The time needed to complete andfile this form will vary depending onindividual circumstances. Theestimated average time is:

If you have comments concerningthe accuracy of these time estimatesor suggestions for making this formsimpler, we would be happy to hearfrom you. See the instructions for thetax return with which this form is filed.

Recordkeeping ........................ 37 hr., 19 min.

Learning about thelaw or the form........................ 5 hr., 10 min.

Preparing and sendingthe form to the IRS ................ . 5 hr., 59 min.

Table AGeneral Depreciation System

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

7 6.55%

7.37%8.92%

8.93%

5.76%

4.46% 6.55%8

6.56%9

Method: 200% declining balance switching to straight line

Convention: Half-year

6.55%10

3.28%11

Table BGeneral and Alternative Depreciation System

If the recovery period is:

Year 5 years 7 years 10 years 12 years 15 years 20 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%

Convention: Half-yearMethod: 150% declining balance switching to straight line


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Table CGeneral Depreciation System

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 3.485% 3.182% 2.879% 2.576% 2.273% 1.970% 1.667% 1.364% 1.061% 0.758% 0.455% 0.152%

29 3.636% 3.636% 3.636% 3.636% 3.636% 3.636% 3.636% 3.636% 3.636% 3.636% 3.636% 3.636%

Recovery period: 27.5 years

Convention: Mid-month

Method: Straight line

10, 12 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 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 DGeneral Depreciation System


Year 1 2 3 4 5 6 7 8 9 10 11 12

9, 11, 13 3.174% 3.175% 3.174% 3.175% 3.174% 3.175% 3.174% 3.175% 3.174% 3.175% 3.174% 3.175%

47 3.175% 3.175% 3.175% 3.175% 3.175% 3.175% 3.175% 3.175% 3.175% 3.175% 3.175% 3.175%

8 3.175% 3.174% 3.175% 3.174% 3.175% 3.174% 3.175% 3.175% 3.175% 3.175% 3.175% 3.175%

Recovery period: 31.5 years

Convention: Mid-monthMethod: Straight line

3.174% 3.175% 3.174% 3.175% 3.174% 3.175% 3.174% 3.175% 3.174% 3.175% 3.174% 3.175%

10, 12 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 EGeneral Depreciation System


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%

239 2.564% 2.564% 2.564% 2.564% 2.564% 2.564% 2.564% 2.564% 2.564% 2.564% 2.564% 2.564%

Recovery period: 39 years

Convention: Mid-month

Method: Straight line


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Depreciation Worksheet

Description of PropertyDate

Placed in

Service

Cost orOther

Basis

Business/Investment

Use %

Section179

Deduction

Depreciation PriorYears

Basis forDepreciation

Method/Convention

RecoveryPeriod

Rate orTable

%

DepreciationDeduction

Page

12

us internal revenue service: i4562--1998

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