Complete List of Tax Topics

How To Depreciate Property, Publication 946 (2009)

4. Figuring Depreciation Under MACRS

Introduction

The Modified Accelerated Cost Recovery System (MACRS) is used to recover the basis of most business and investment property placed in service after 1986. MACRS consists of two depreciation systems, the General Depreciation System (GDS) and the Alternative Depreciation System (ADS). Generally, these systems provide different methods and recovery periods to use in figuring depreciation deductions.

This chapter explains how to determine which MACRS depreciation system applies to your property. It also discusses other information you need to know before you can figure depreciation under MACRS. This information includes the property's recovery class, placed in service date, and basis, as well as the applicable recovery period, convention, and depreciation method. It explains how to use this information to figure your depreciation deduction and how to use a general asset account to depreciate a group of properties. Finally, it explains when and how to recapture MACRS depreciation.

Useful Items - You may want to see:

Publication

• 225 Farmer's Tax Guide
• 463 Travel, Entertainment, Gift, and Car Expenses
• 544 Sales and Other Dispositions of Assets
• 551 Basis of Assets
• 587 Business Use of Your Home (Including Use by Daycare Providers)

Form (and Instructions)

• 2106 Employee Business Expenses
• 2106-EZ Unreimbursed Employee Business Expenses
• 4562 Depreciation and Amortization

See chapter 6 for information about getting publications and forms.

Which Depreciation System (GDS or ADS) Applies?

Your use of either the General Depreciation System (GDS) or the Alternative Depreciation System (ADS) to depreciate property under MACRS determines what depreciation method and recovery period you use. You generally must use GDS unless you are specifically required by law to use ADS or you elect to use ADS.

If you placed your property in service in 2008, complete Part III of Form 4562 to report depreciation using MACRS. Complete section B of Part III to report depreciation using GDS, and complete section C of Part III to report depreciation using ADS. If you placed your property in service before 2008 and are required to file Form 4562, report depreciation using either GDS or ADS on line 17 in Part III.

Required use of ADS.

You must use ADS for the following property.

• Listed property used 50% or less in a qualified business use. See chapter 5 for information on listed property.
• Any tangible property used predominantly outside the United States during the year.
• Any tax-exempt use property.
• Any tax-exempt bond-financed property.
• All property used predominantly in a farming business and placed in service in any tax year during which an election not to apply the uniform capitalization rules to certain farming costs is in effect.
• Any property imported from a foreign country for which an Executive Order is in effect because the country maintains trade restrictions or engages in other discriminatory acts.

If you are required to use ADS to depreciate your property, you cannot claim any special depreciation allowance (discussed in chapter 3) for the property.

Electing ADS.

Which Property Class Applies Under GDS?

The following is a list of the nine property classifications under GDS and examples of the types of property included in each class. These property classes are also listed under column (a) in section B, Part III, of Form 4562. For detailed information on property classes, see Appendix B, Table of Class Lives and Recovery Periods, in this publication.

1. 3-year property.
   1. Tractor units for over-the-road use.
   2. Any race horse over 2 years old when placed in service. (All race horses placed in service after December 31, 2008, and before January 1, 2014, are deemed to be 3-year property, regardless of age.)
   3. Any other horse (other than a race horse) over 12 years old when placed in service.
   4. Qualified rent-to-own property (defined later).
2. 5-year property.
   1. Automobiles, taxis, buses, and trucks.
   2. Computers and peripheral equipment.
   3. Office machinery (such as typewriters, calculators, and copiers).
   4. Any property used in research and experimentation.
   5. Breeding cattle and dairy cattle.
   6. Appliances, carpets, furniture, etc., used in a residential rental real estate activity.
   7. Certain geothermal, solar, and wind energy property.
3. 7-year property.
   1. Office furniture and fixtures (such as desks, files, and safes).
   2. Agricultural machinery and equipment.
   3. Any property that does not have a class life and has not been designated by law as being in any other class.
   4. Certain motorsports entertainment complex property placed in service before January 1, 2010 (defined later).
   5. Any natural gas gathering line placed in service after April 11, 2005. See Natural gas gathering line, natural gas distribution line, and electric transmission property, later.
4. 10-year property.
   1. Vessels, barges, tugs, and similar water transportation equipment.
   2. Any single purpose agricultural or horticultural structure.
   3. Any tree or vine bearing fruits or nuts.
   4. Qualified small electric meter and qualified smart electric grid system (defined later) placed in service on or after October 3, 2008.
5. 15-year property.
   1. Certain improvements made directly to land or added to it (such as shrubbery, fences, roads, sidewalks, and bridges).
   2. Any retail motor fuels outlet (defined later), such as a convenience store.
   3. Any municipal wastewater treatment plant.
   4. Any qualified leasehold improvement property (defined later) placed in service before January 1, 2010.
   5. Any qualified restaurant property (defined later) placed in service before January 1, 2010.
   6. Initial clearing and grading land improvements for gas utility property.
   7. Electric transmission property (that is section 1245 property) used in the transmission at 69 or more kilovolts of electricity placed in service after April 11, 2005. See Natural gas gathering line, natural gas distribution line, and electric transmission property, later.
   8. Any natural gas distribution line placed in service after April 11, 2005. See Natural gas gathering line, natural gas distribution line, and electric transmission property, later.
6. 20-year property.
   1. Farm buildings (other than single purpose agricultural or horticultural structures).
   2. Municipal sewers not classified as 25-year property.
   3. Initial clearing and grading land improvements for electric utility transmission and distribution plants.
7. 25-year property. This class is water utility property, which is either of the following.
   1. Property that is an integral part of the gathering, treatment, or commercial distribution of water, and that, without regard to this provision, would be 20-year property.
   2. Municipal sewers other than property placed in service under a binding contract in effect at all times since June 9, 1996.
8. Residential rental property. This is any building or structure, such as a rental home (including a mobile home), if 80% or more of its gross rental income for the tax year is from dwelling units. A dwelling unit is a house or apartment used to provide living accommodations in a building or structure. It does not include a unit in a hotel, motel, or other establishment where more than half the units are used on a transient basis. If you occupy any part of the building or structure for personal use, its gross rental income includes the fair rental value of the part you occupy.
9. Nonresidential real property. This is section 1250 property, such as an office building, store, or warehouse, that is neither residential rental property nor property with a class life of less than 27.5 years.

If your property is not listed above, you can determine its property class from the Table of Class Lives and Recovery Periods in Appendix B. The property class is generally the same as the GDS recovery period indicated in the table.

Qualified rent-to-own property.

Qualified rent-to-own property is property held by a rent-to-own dealer for purposes of being subject to a rent-to-own contract. It is tangible personal property generally used in the home for personal use. It includes computers and peripheral equipment, televisions, videocassette recorders, stereos, camcorders, appliances, furniture, washing machines and dryers, refrigerators, and other similar consumer durable property. Consumer durable property does not include real property, aircraft, boats, motor vehicles, or trailers. If some of the property you rent to others under a rent-to-own agreement is of a type that may be used by the renters for either personal or business purposes, you still can treat this property as qualified property as long as it does not represent a significant portion of your leasing property. However, if this dual-use property does represent a significant portion of your leasing property, you must prove that this property is qualified rent-to-own property.

Rent-to-own dealer.

You are a rent-to-own dealer if you meet all the following requirements.

• You regularly enter into rent-to-own contracts in the ordinary course of your business for the use of consumer property.
• A substantial portion of these contracts end with the customer returning the property before making all the payments required to transfer ownership.
• The property is tangible personal property of a type generally used within the home for personal use.

Rent-to-own contract.

This is any lease for the use of consumer property between a rent-to-own dealer and a customer who is an individual which—

• Is titled “Rent-to-Own Agreement,” “Lease Agreement with Ownership Option,” or other similar language.
• Provides a beginning date and a maximum period of time, not to exceed 156 weeks or 36 months from the beginning date, for which the contract can be in effect (including renewals or options to extend).
• Provides for regular periodic (weekly or monthly) payments that can be either level or decreasing. If the payments are decreasing, no payment can be less than 40% of the largest payment.
• Provides for total payments that generally exceed the normal retail price of the property plus interest.
• Provides for total payments that do not exceed $10,000 for each item of property.
• Provides that the customer has no legal obligation to make all payments outlined in the contract and that, at the end of each weekly or monthly payment period, the customer can either continue to use the property by making the next payment or return the property in good working order with no further obligations and no entitlement to a return of any prior payments.
• Provides that legal title to the property remains with the rent-to-own dealer until the customer makes either all the required payments or the early purchase payments required under the contract to acquire legal title.
• Provides that the customer has no right to sell, sublease, mortgage, pawn, pledge, or otherwise dispose of the property until all contract payments have been made.

Motorsports entertainment complex.

This is a racing track facility permanently situated on land that hosts one or more racing events for automobiles, trucks, or motorcycles during the 36-month period after the first day of the month in which the facility is placed in service. The events must be open to the public for the price of admission.

Retail motor fuels outlet.

Real property is a retail motor fuels outlet if it is used to a substantial extent in the retail marketing of petroleum or petroleum products (whether or not it is also used to sell food or other convenience items) and meets any one of the following three tests.

• It is not larger than 1,400 square feet.
• 50% or more of the gross revenues generated from the property are derived from petroleum sales.
• 50% or more of the floor space in the property is devoted to petroleum marketing sales.

A retail motor fuels outlet does not include any facility related to petroleum and natural gas trunk pipelines.

Qualified leasehold improvement property.

Generally, this is any improvement to an interior part of a building that is nonresidential real property, provided all of the requirements discussed in chapter 3 under Qualified leasehold improvement property are met. In addition, an improvement made by the lessor does not qualify as qualified leasehold improvement property to any subsequent owner unless it is acquired from the original lessor by reason of the lessor's death or in any of the following types of transactions.

1. A transaction to which section 381(a) applies,
2. A mere change in the form of conducting the trade or business so long as the property is retained in the trade or business as qualified leasehold improvement property and the taxpayer retains a substantial interest in the trade or business,
3. A like-kind exchange, involuntary conversion, or reacquisition of real property to the extent that the basis in the property represents the carryover basis, or
4. Certain nonrecognition transactions to the extent that your basis in the property is determined by reference to the transferor's or distributor's basis in the property. Examples include the following.
   1. A complete liquidation of a subsidiary.
   2. A transfer to a corporation controlled by the transferor.
   3. An exchange of property by a corporation solely for stock or securities in another corporation in a reorganization.

Qualified restaurant property.

Qualified restaurant property is any section 1250 property that is an improvement to a building, placed in service before January 1, 2009, and meets the following requirements.

• The improvement is placed in service more than 3 years after the date the building was first placed in service, and
• More than 50% of the building's square footage is devoted to preparation of meals and seating for on-premise consumption of prepared meals.

Qualified smart electric meter.

A qualified smart electric meter is any time-based meter and related communication equipment which is placed in service by a supplier of electric energy or a provider of electric energy services and which is capable of being used by you as part of a system that:

• Measures and records electricity usage data on a time-differentiated basis in at least 24 separate time segments per day;
• Provides for the exchange of information between the supplier or provider and the customer's smart electric meter in support of time-based rates or other forms of demand response;
• Provides data to the supplier or provider so that the supplier or provider can provide energy usage information to customers electronically, and
• Provides all commercial and residential customers of such supplier or provider with net metering. Net metering means allowing a customer a credit, if any, as complies with applicable federal and state laws and regulations for providing electricity to the supplier or provider.

Qualified smart electric grid system.

A qualified smart electric grids system means any smart grid property used as part of a system for electric distribution grid communications, monitoring, and management placed in service after October 3, 2008, by a taxpayer who is a supplier of electrical energy or a provider of electrical energy services. Smart grid property includes electronics and related equipment that is capable of:

• Sensing, collecting, and monitoring data of or from all portions of a utility's electric distribution grid,
• Providing real-time, two-way communications to monitor or to manage the grid, and
• Providing real-time analysis of an event prediction based on collected data that can be used to provide electric distribution system reliability, quality, and performance.

Natural gas gathering line, natural gas distribution line, and electric transmission property.

Any natural gas gathering line placed in service after April 11, 2005, is treated as 7-year property, and electric transmission property (that is section 1245 property) used in the transmission at 69 or more kilovolts of electricity and any natural gas distribution line placed in service after April 11, 2005, are treated as 15-year property, if the following requirements are met.

• The original use of the property must have begun with you after April 11, 2005. Original use means the first use to which the property is put, whether or not by you. Therefore, property used by any person before April 12, 2005, is not original use. Original use includes additional capital expenditures you incurred to recondition or rebuild your property. However, original use does not include the cost of reconditioned or rebuilt property you acquired. Property containing used parts will not be treated as reconditioned or rebuilt if the cost of the used parts is not more than 20% of the total cost of the property.
• The property must not be placed in service under a binding contract in effect before April 12, 2005.
• The property must not be self-constructed property (property you manufacture, construct, or produce for your own use), if you began the manufacture, construction, or production of the property before April 12, 2005. Property that is manufactured, constructed, or produced for your use by another person under a written binding contract entered into by you or a related party before the manufacture, construction, or production of the property, is considered to be manufactured, constructed, or produced by you.

What Is the Placed in Service Date?

You begin to claim depreciation when your property is placed in service for either use in a trade or business or the production of income. The placed in service date for your property is the date the property is ready and available for a specific use. It is therefore not necessarily the date it is first used. 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. See Placed in Service under When Does Depreciation Begin and End in chapter 1 for examples illustrating when property is placed in service.

What Is the Basis for Depreciation?

The basis for depreciation of MACRS property is the property's cost or other basis multiplied by the percentage of business/investment use. For a discussion of business/investment use, see Partial business or investment use under Property Used in Your Business or Income-Producing Activity in chapter 1. Reduce that amount by any credits and deductions allocable to the property. The following are examples of some credits and deductions that reduce basis.

• Any deduction for section 179 property.
• Any deduction under section 179B of the Internal Revenue Code for capital costs to comply with Environmental Protection Agency sulfur regulations.
• Any deduction under section 179C of the Internal Revenue Code for certain qualified refinery property placed in service after August 8, 2005.
• Any deduction under section 179D of the Internal Revenue Code for certain energy efficient commercial building property placed in service after December 31, 2005.
• Any deduction under section 179E of the Internal Revenue Code for qualified advanced mine safety equipment property placed in service after December 20, 2006.
• Any deduction for removal of barriers to the disabled and the elderly.
• Any disabled access credit, enhanced oil recovery credit, and credit for employer-provided childcare facilities and services.
• Any special depreciation allowance.
• Basis adjustment for investment credit property under section 50(c) of the Internal Revenue Code.

For additional credits and deductions that affect basis, see section 1016 of the Internal Revenue Code.

Enter the basis for depreciation under column (c) in Part III of Form 4562. For information about how to determine the cost or other basis of property, see What Is the Basis of Your Depreciable Property in chapter 1.

Which Recovery Period Applies?

The recovery period of property is the number of years over which you recover its cost or other basis. It is determined based on the depreciation system (GDS or ADS) used.

Recovery Periods Under GDS

Under GDS, property that is not qualified Indian reservation property is depreciated over one of the following recovery periods.

The GDS recovery periods for property not listed above can be found in Appendix B, Table of Class Lives and Recovery Periods. Residential rental property and nonresidential real property are defined earlier under Which Property Class Applies Under GDS.

Enter the appropriate recovery period on Form 4562 under column (d) in section B of Part III, unless already shown (for 25-year property, residential rental property, and nonresidential real property).

Office in the home.

Home changed to rental use.

If you begin to rent a home that was your personal home before 1987, you depreciate it as residential rental property over 27.5 years.

Indian Reservation Property

The recovery periods for qualified property you placed in service on an Indian reservation after 1993 and before 2009 are shorter than those listed earlier. The following table shows these shorter recovery periods.

Nonresidential real property is defined earlier under Which Property Class Applies Under GDS.

Use this chart to find the correct percentage table to use for qualified Indian reservation property.

Qualified property.

Property eligible for the shorter recovery periods are 3-, 5-, 7-, 10-, 15-, and 20-year property and nonresidential real property. You must use this property predominantly in the active conduct of a trade or business within an Indian reservation. The rental of real property that is located on an Indian reservation is treated as the active conduct of a trade or business within an Indian reservation. The following property is not qualified property.

1. Property used or located outside an Indian reservation on a regular basis, other than qualified infrastructure property.
2. Property acquired directly or indirectly from a related person.
3. Property placed in service for purposes of conducting or housing class I, II, or III gaming activities. These activities are defined in section 4 of the Indian Regulatory Act (25 U.S.C. 2703).
4. Any property you must depreciate under ADS. Determine whether property is qualified without regard to the election to use ADS and after applying the special rules for listed property not used predominantly for qualified business use (discussed in chapter 5).

Qualified infrastructure property.

Item (1) above does not apply to qualified infrastructure property located outside the reservation that is used to connect with qualified infrastructure property within the reservation. Qualified infrastructure property is property that meets all the following rules.

• It is qualified property, as defined earlier, except that it is outside the reservation.
• It benefits the tribal infrastructure.
• It is available to the general public.
• It is placed in service in connection with the active conduct of a trade or business within a reservation.

Infrastructure property includes, but is not limited to, roads, power lines, water systems, railroad spurs, and communications facilities.

Related person.

For purposes of item (2) above, see Related persons in the discussion on property owned or used in 1986 under Which Method Can You Use To Depreciate Your Property in chapter 1 for a description of related persons.

Indian reservation.

The term Indian reservation means a reservation as defined in section 3(d) of the Indian Financing Act of 1974 (25 U.S.C. 1452(d)) or section 4(10) of the Indian Child Welfare Act of 1978 (25 U.S.C. 1903(10)). Section 3(d) of the Indian Financing Act of 1974 defines reservation to include former Indian reservations in Oklahoma. For a definition of the term “former Indian reservations in Oklahoma,” see Notice 98-45 in Internal Revenue Bulletin 1998-35.

Recovery Periods Under ADS

The recovery periods for most property generally are longer under ADS than they are under GDS. The following table shows some of the ADS recovery periods.

The ADS recovery periods for property not listed above can be found in the tables in Appendix B. Rent-to-own property, qualified leasehold improvement property, qualified restaurant property, residential rental property, and nonresidential real property are defined earlier under Which Property Class Applies Under GDS.

Tax-exempt use property subject to a lease.

The ADS recovery period for any property leased under a lease agreement to a tax-exempt organization, governmental unit, or foreign person or entity (other than a partnership) cannot be less than 125% of the lease term.

Additions and Improvements

An addition or improvement you make to depreciable property is treated as separate depreciable property. See How Do You Treat Repairs and Improvements in chapter 1 for a definition of improvements. Its property class and recovery period are the same as those that would apply to the original property if you had placed it in service at the same time you placed the addition or improvement in service. The recovery period begins on the later of the following dates.

• The date you place the addition or improvement in service.
• The date you place in service the property to which you made the addition or improvement.

Which Convention Applies?

Under MACRS, averaging conventions establish when the recovery period begins and ends. The convention you use determines the number of months for which you can claim depreciation in the year you place property in service and in the year you dispose of the property.

The mid-month convention.

The mid-quarter convention.

The half-year convention.

Which Depreciation Method Applies?

MACRS provides three depreciation methods under GDS and one depreciation method under ADS.

• The 200% declining balance method over a GDS recovery period.
• The 150% declining balance method over a GDS recovery period.
• The straight line method over a GDS recovery period.
• The straight line method over an ADS recovery period.

Table 4-1 lists the types of property you can depreciate under each method. It also gives a brief explanation of the method, including any benefits that may apply.

Depreciation Methods for Farm Property

If you place personal property in service in a farming business after 1988, you generally must depreciate it under GDS using the 150% declining balance method unless you are a farmer who must depreciate the property under ADS using the straight line method or you elect to depreciate the property under GDS or ADS using the straight line method. You can depreciate real property using the straight line method under either GDS or ADS.

Fruit or nut trees and vines.

Depreciate trees and vines bearing fruit or nuts under GDS using the straight line method over a recovery period of 10 years.

ADS required for some farmers.

If you elect not to apply the uniform capitalization rules to any plant produced in your farming business, you must use ADS. You must use ADS for all property you place in service in any year the election is in effect. See the regulations under section 263A of the Internal Revenue Code for information on the uniform capitalization rules that apply to farm property.

Electing a Different Method

As shown in Table 4-1, you can elect a different method for depreciation for certain types of property. You must make the election by the due date of the return (including extensions) for the year you placed the property in service. However, if you timely filed your return for the year without making the election, you still can make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Attach the election to the amended return and write “Filed pursuant to section 301.9100-2” on the election statement. File the amended return at the same address you filed the original return. Once you make the election, you cannot change it.

150% election.

Straight line election.

Election of ADS.

Farm property.

Instead of using the 150% declining balance method over a GDS recovery period for property you use in a farming business (other than real property), you can elect to depreciate it using either of the following methods.

• The straight line method over a GDS recovery period.
• The straight line method over an ADS recovery period.

Table 4-1. Depreciation Methods

How Is the Depreciation Deduction Figured?

To figure your depreciation deduction under MACRS, you first determine the depreciation system, property class, placed in service date, basis amount, recovery period, convention, and depreciation method that applies to your property. Then, you are ready to figure your depreciation deduction. You can figure it using a percentage table provided by the IRS, or you can figure it yourself without using the table.

Using the MACRS Percentage Tables

To help you figure your deduction under MACRS, the IRS has established percentage tables that incorporate the applicable convention and depreciation method. These percentage tables are in Appendix A near the end of this publication.

Which table to use.

Appendix A contains the MACRS Percentage Table Guide, which is designed to help you locate the correct percentage table to use for depreciating your property. The percentage tables immediately follow the guide.

Rules Covering the Use of the Tables

The following rules cover the use of the percentage tables.

1. You must apply the rates in the percentage tables to your property's unadjusted basis.
2. You cannot use the percentage tables for a short tax year. See Figuring the Deduction for a Short Tax Year, later, for information on the short tax year rules.
3. Once you start using the percentage tables for any item of property, you generally must continue to use them for the entire recovery period of the property.
4. You must stop using the tables if you adjust the basis of the property for any reason other than—
   1. Depreciation allowed or allowable, or
   2. An addition or improvement to that property that is depreciated as a separate item of property.

Basis adjustments other than those made due to the items listed in (4) include an increase in basis for the recapture of a clean-fuel deduction or credit and a reduction in basis for a casualty loss.

Basis adjustment due to recapture of clean-fuel vehicle deduction or credit.

If you increase the basis of your property because of the recapture of part or all of a deduction for clean-fuel vehicles or the credit for clean-fuel vehicle refueling property placed in service before January 1, 2006, you cannot continue to use the percentage tables. For the year of the adjustment and the remaining recovery period, you must figure the depreciation deduction yourself using the property's adjusted basis at the end of the year. See Figuring the Deduction Without Using the Tables, later.

Basis adjustment due to casualty loss.

If you reduce the basis of your property because of a casualty, you cannot continue to use the percentage tables. For the year of the adjustment and the remaining recovery period, you must figure the depreciation yourself using the property's adjusted basis at the end of the year. See Figuring the Deduction Without Using the Tables, later.

Figuring the Unadjusted Basis of Your Property

You must apply the table rates to your property's unadjusted basis each year of the recovery period. Unadjusted basis is the same basis amount you would use to figure gain on a sale, but you figure it without reducing your original basis by any MACRS depreciation taken in earlier years. However, you do reduce your original basis by other amounts, including the following.

• Any amortization taken on the property.
• Any section 179 deduction claimed.
• Any special depreciation allowance taken on the property.

For business property you purchase during the year, the unadjusted basis is its cost minus these and other applicable adjustments. If you trade property, your unadjusted basis in the property received is the cash paid plus the adjusted basis of the property traded minus these adjustments.

MACRS Worksheet

You can use this worksheet to help you figure your depreciation deduction using the percentage tables. Use a separate worksheet for each item of property. Then, use the information from this worksheet to prepare Form 4562.

MACRS Worksheet

The following example shows how to figure your MACRS depreciation deduction using the percentage tables and the MACRS worksheet.

If there are no adjustments to the basis of the property other than depreciation, your depreciation deduction for each subsequent year of the recovery period will be as follows.

Examples

The following examples are provided to show you how to use the percentage tables. In both examples, assume the following.

• You use the property only for business.
• You use the calendar year as your tax year.
• You use GDS for all the properties.

Sale or Other Disposition Before the Recovery Period Ends

If you sell or otherwise dispose of your property before the end of its recovery period, your depreciation deduction for the year of the disposition will be only part of the depreciation amount for the full year. You have disposed of your property if you have permanently withdrawn it from use in your business or income-producing activity because of its sale, exchange, retirement, abandonment, involuntary conversion, or destruction. After you figure the full-year depreciation amount, figure the deductible part using the convention that applies to the property.

Half-year convention used.

For property for which you used a half-year convention, the depreciation deduction for the year of the disposition is half the depreciation determined for the full year.

Mid-quarter convention used.

Mid-month convention used.

If you dispose of residential rental or nonresidential real property, figure your depreciation deduction for the year of the disposition by multiplying a full year of depreciation by a fraction. The numerator of the fraction is the number of months (including partial months) in the year that the property is considered in service. The denominator is 12.

Figuring the Deduction Without Using the Tables

Instead of using the rates in the percentage tables to figure your depreciation deduction, you can figure it yourself. Before making the computation each year, you must reduce your adjusted basis in the property by the depreciation claimed the previous year.

Declining Balance Method

When using a declining balance method, you apply the same depreciation rate each year to the adjusted basis of your property. You must use the applicable convention for the first tax year and you must switch to the straight line method beginning in the first year for which it will give an equal or greater deduction. The straight line method is explained later.

You figure depreciation for the year you place property in service as follows.

1. Multiply your adjusted basis in the property by the declining balance rate.
2. Apply the applicable convention.

You figure depreciation for all other years (before the year you switch to the straight line method) as follows.

1. Reduce your adjusted basis in the property by the depreciation allowed or allowable in earlier years.
2. Multiply this new adjusted basis by the same declining balance rate used in earlier years.

If you dispose of property before the end of its recovery period, see Using the Applicable Convention, later, for information on how to figure depreciation for the year you dispose of it.

Figuring depreciation under the declining balance method and switching to the straight line method is illustrated in Example 1, later, under Examples.

Declining balance rate.

You figure your declining balance rate by dividing the specified declining balance percentage (150% or 200% changed to a decimal) by the number of years in the property's recovery period. For example, for 3-year property depreciated using the 200% declining balance method, divide 2.00 (200%) by 3 to get 0.6667, or a 66.67% declining balance rate. For 15-year property depreciated using the 150% declining balance method, divide 1.50 (150%) by 15 to get 0.10, or a 10% declining balance rate. The following table shows the declining balance rate for each property class and the first year for which the straight line method gives an equal or greater deduction.

Straight Line Method

When using the straight line method, you apply a different depreciation rate each year to the adjusted basis of your property. You must use the applicable convention in the year you place the property in service and the year you dispose of the property.

You figure depreciation for the year you place property in service as follows.

1. Multiply your adjusted basis in the property by the straight line rate.
2. Apply the applicable convention.

You figure depreciation for all other years (including the year you switch from the declining balance method to the straight line method) as follows.

1. Reduce your adjusted basis in the property by the depreciation allowed or allowable in earlier years (under any method).
2. Determine the depreciation rate for the year.
3. Multiply the adjusted basis figured in (1) by the depreciation rate figured in (2).

If you dispose of property before the end of its recovery period, see Using the Applicable Convention, later, for information on how to figure depreciation for the year you dispose of it.

Straight line rate.

You determine the straight line depreciation rate for any tax year by dividing the number 1 by the years remaining in the recovery period at the beginning of that year. When figuring the number of years remaining, you must take into account the convention used in the year you placed the property in service. If the number of years remaining is less than 1, the depreciation rate for that tax year is 1.0 (100%).

Using the Applicable Convention

The applicable convention (discussed earlier under Which Convention Applies) affects how you figure your depreciation deduction for the year you place your property in service and for the year you dispose of it. It determines how much of the recovery period remains at the beginning of each year, so it also affects the depreciation rate for property you depreciate under the straight line method. See Straight line rate in the previous discussion. Use the applicable convention as explained in the following discussions.

Half-year convention.

If this convention applies, you deduct a half-year of depreciation for the first year and the last year that you depreciate the property. You deduct a full year of depreciation for any other year during the recovery period. Figure your depreciation deduction for the year you place the property in service by dividing the depreciation for a full year by 2. If you dispose of the property before the end of the recovery period, figure your depreciation deduction for the year of the disposition the same way. If you hold the property for the entire recovery period, your depreciation deduction for the year that includes the final 6 months of the recovery period is the amount of your unrecovered basis in the property.

Mid-quarter convention.

Mid-month convention.

If this convention applies, the depreciation you can deduct for the first year that you depreciate the property depends on the month in which you place the property in service. Figure your depreciation deduction for the year you place the property in service by multiplying the depreciation for a full year by a fraction. The numerator of the fraction is the number of full months in the year that the property is in service plus ½ (or 0.5). The denominator is 12. If you dispose of the property before the end of the recovery period, figure your depreciation deduction for the year of the disposition the same way. If you hold the property for the entire recovery period, your depreciation deduction for the year that includes the final month of the recovery period is the amount of your unrecovered basis in the property.

Examples

The following examples show how to figure depreciation under MACRS without using the percentage tables. Figures are rounded for purposes of the examples. Assume for all the examples that you use a calendar year as your tax year.

Figuring the Deduction for Property Acquired in a Nontaxable Exchange

If your property has a carryover basis because you acquired it in a nontaxable transfer such as a like-kind exchange or involuntary conversion, you must generally figure depreciation for the property as if the transfer had not occurred. However, see Like-kind exchanges and involuntary conversions, earlier, in chapter 3 under How Much Can You Deduct and Property Acquired in a Like-kind Exchange or Involuntary Conversion, next.

Property Acquired in a Like-kind Exchange or Involuntary Conversion

You generally must depreciate the carryover basis of property acquired in a like-kind exchange or involuntary conversion over the remaining recovery period of the property exchanged or involuntarily converted. You also generally continue to use the same depreciation method and convention used for the exchanged or involuntarily converted property. This applies only to acquired property with the same or a shorter recovery period and the same or more accelerated depreciation method than the property exchanged or involuntarily converted. The excess basis (the part of the acquired property's basis that exceeds its carryover basis), if any, of the acquired property is treated as newly placed in service property.

For acquired property that has a longer recovery period or less accelerated depreciation method than the exchanged or involuntarily converted property, you generally must depreciate the carryover basis of the acquired property as if it were placed in service in the same tax year as the exchanged or involuntarily converted property. You also generally continue to use the longer recovery period and less accelerated depreciation method of the acquired property.

If the MACRS property you acquired in the exchange or involuntary conversion is qualified property, discussed earlier in chapter 3 under What Is Qualified Property, you can claim a special depreciation allowance on the carryover basis.

Special rules apply to vehicles acquired in a trade-in. For information on how to figure depreciation for a vehicle acquired in a trade-in that is subject to the passenger automobile limits, see Deductions For Passenger Automobiles Acquired in a Trade-in under Do the Passenger Automobile Limits Apply in chapter 5.

Election out.

Instead of using the above rules, you can elect, for depreciation purposes, to treat the adjusted basis of the exchanged or involuntarily converted property as if disposed of at the time of the exchange or involuntary conversion. Treat the carryover basis and excess basis, if any, for the acquired property as if placed in service the later of the date you acquired it or the time of the disposition of the exchanged or involuntarily converted property. The depreciable basis of the new property is the adjusted basis of the exchanged or involuntarily converted property plus any additional amount you paid for it. The election, if made, applies to both the acquired property and the exchanged or involuntarily converted property. This election does not affect the amount of gain or loss recognized on the exchange or involuntary conversion.

When to make the election.

Property Acquired in a Nontaxable Transfer

You must depreciate MACRS property acquired by a corporation or partnership in certain nontaxable transfers over the property's remaining recovery period in the transferor's hands, as if the transfer had not occurred. You must continue to use the same depreciation method and convention as the transferor. You can depreciate the part of the property's basis that exceeds its carryover basis (the transferor's adjusted basis in the property) as newly purchased MACRS property.

The nontaxable transfers covered by this rule include the following.

• A distribution in complete liquidation of a subsidiary.
• A transfer to a corporation controlled by the transferor.
• An exchange of property solely for corporate stock or securities in a reorganization.
• A contribution of property to a partnership in exchange for a partnership interest.
• A partnership distribution of property to a partner.

Figuring the Deduction for a Short Tax Year

You cannot use the MACRS percentage tables to determine depreciation for a short tax year. A short tax year is any tax year with less than 12 full months. This section discusses the rules for determining the depreciation deduction for property you place in service or dispose of in a short tax year. It also discusses the rules for determining depreciation when you have a short tax year during the recovery period (other than the year the property is placed in service or disposed of).

For more information on figuring depreciation for a short tax year, see Revenue Procedure 89-15, 1989-1 C.B. 816.

Using the Applicable Convention in a Short Tax Year

The applicable convention establishes the date property is treated as placed in service and disposed of. Depreciation is allowable only for that part of the tax year the property is treated as in service. The recovery period begins on the placed in service date determined by applying the convention. The remaining recovery period at the beginning of the next tax year is the full recovery period less the part for which depreciation was allowable in the first tax year.

The following discussions explain how to use the applicable convention in a short tax year.

Mid-month convention.

Under the mid-month convention, you always treat your property as placed in service or disposed of on the midpoint of the month it is placed in service or disposed of. You apply this rule without regard to your tax year.

Half-year convention.

Under the half-year convention, you treat property as placed in service or disposed of on the midpoint of the tax year it is placed in service or disposed of.

First or last day of month.

For a short tax year beginning on the first day of a month or ending on the last day of a month, the tax year consists of the number of months in the tax year. If the short tax year includes part of a month, you generally include the full month in the number of months in the tax year. You determine the midpoint of the tax year by dividing the number of months in the tax year by 2. For the half-year convention, you treat property as placed in service or disposed of on either the first day or the midpoint of a month. For example, a short tax year that begins on June 20 and ends on December 31 consists of 7 months. You use only full months for this determination, so you treat the tax year as beginning on June 1 instead of June 20. The midpoint of the tax year is the middle of September (3½ months from the beginning of the tax year). You treat property as placed in service or disposed of on this midpoint.

Not on first or last day of month.

For a short tax year not beginning on the first day of a month and not ending on the last day of a month, the tax year consists of the number of days in the tax year. You determine the midpoint of the tax year by dividing the number of days in the tax year by 2. For the half-year convention, you treat property as placed in service or disposed of on either the first day or the midpoint of a month. If the result of dividing the number of days in the tax year by 2 is not the first day or the midpoint of a month, you treat the property as placed in service or disposed of on the nearest preceding first day or midpoint of a month.

Mid-quarter convention.

To determine if you must use the mid-quarter convention, compare the basis of property you place in service in the last 3 months of your tax year to that of property you place in service during the full tax year. The length of your tax year does not matter. If you have a short tax year of 3 months or less, use the mid-quarter convention for all applicable property you place in service during that tax year. You treat property under the mid-quarter convention as placed in service or disposed of on the midpoint of the quarter of the tax year in which it is placed in service or disposed of. Divide a short tax year into 4 quarters and determine the midpoint of each quarter. For a short tax year of 4 or 8 full calendar months, determine quarters on the basis of whole months. The midpoint of each quarter is either the first day or the midpoint of a month. Treat property as placed in service or disposed of on this midpoint. To determine the midpoint of a quarter for a short tax year of other than 4 or 8 full calendar months, complete the following steps.

1. Determine the number of days in your short tax year.
2. Determine the number of days in each quarter by dividing the number of days in your short tax year
   by 4.
3. Determine the midpoint of each quarter by dividing the number of days in each quarter by 2.

Property Placed in Service in a Short Tax Year

To figure your MACRS depreciation deduction for the short tax year, you must first determine the depreciation for a full tax year. You do this by multiplying your basis in the property by the applicable depreciation rate. Then, determine the depreciation for the short tax year. Do this by multiplying the depreciation for a full tax year by a fraction. The numerator (top number) of the fraction is the number of months (including parts of a month) the property is treated as in service during the tax year (applying the applicable convention). The denominator (bottom number) is 12. See Depreciation After a Short Tax Year, later, for information on how to figure depreciation in later years.

Property Placed in Service Before a Short Tax Year

If you have a short tax year after the tax year in which you began depreciating property, you must change the way you figure depreciation for that property. If you were using the percentage tables, you can no longer use them. You must figure depreciation for the short tax year and each later tax year as explained next.

Depreciation After a Short Tax Year

You can use either of the following methods to figure the depreciation for years after a short tax year.

• The simplified method.
• The allocation method.

You must use the method you choose consistently.

Using the simplified method for a 12-month year.

Under the simplified method, you figure the depreciation for a later 12-month year in the recovery period by multiplying the adjusted basis of your property at the beginning of the year by the applicable depreciation rate.

Using the simplified method for a short year.

If a later tax year in the recovery period is a short tax year, you figure depreciation for that year by multiplying the adjusted basis of the property at the beginning of the tax year by the applicable depreciation rate, and then by a fraction. The fraction's numerator is the number of months (including parts of a month) in the tax year. Its denominator is 12.

Using the simplified method for an early disposition.

If you dispose of property in a later tax year before the end of the recovery period, determine the depreciation for the year of disposition by multiplying the adjusted basis of the property at the beginning of the tax year by the applicable depreciation rate and then multiplying the result by a fraction. The fraction's numerator is the number of months (including parts of a month) the property is treated as in service during the tax year (applying the applicable convention). Its denominator is 12.

Using the allocation method for a 12-month or short tax year.

Under the allocation method, you figure the depreciation for each later tax year by allocating to that year the depreciation attributable to the parts of the recovery years that fall within that year. Whether your tax year is a 12-month or short tax year, you figure the depreciation by determining which recovery years are included in that year. For each recovery year included, multiply the depreciation attributable to that recovery year by a fraction. The fraction's numerator is the number of months (including parts of a month) that are included in both the tax year and the recovery year. Its denominator is 12. The allowable depreciation for the tax year is the sum of the depreciation figured for each recovery year.

Using the allocation method for an early disposition.

How Do You Use General Asset Accounts?

To make it easier to figure MACRS depreciation, you can group separate properties into one or more general asset accounts (GAAs). You then can depreciate all the properties in each account as a single item of property.

Property you cannot include.

You cannot include property in a GAA if you use it in both a personal activity and a trade or business (or for the production of income) in the year in which you first place it in service. If property you included in a GAA is later used in a personal activity, see Terminating GAA Treatment, later.

Property generating foreign source income.

For information on the GAA treatment of property that generates foreign source income, see sections 1.168(i)-1(f) of the regulations.

Change in use.

Special rules apply to figuring depreciation for property in a GAA for which the use changes during the tax year. Examples include a change in use resulting in a shorter recovery period and/or more accelerated depreciation method or a change in use resulting in a longer recovery period and/or a less accelerated depreciation method. See sections 1.168(i)-1(h) and 1.168(i)-4 of the regulations.

Grouping Property

Each GAA must include only property you placed in service in the same year and that has the following in common.

• Asset class, if any.
• Recovery period.
• Depreciation method.
• Convention.

The following rules also apply when you establish a GAA.

• No asset class. Properties without an asset class, but with the same depreciation method, recovery period, and convention, can be grouped into the same GAA.
• Mid-quarter convention. Property subject to the mid-quarter convention can only be grouped into a GAA with property placed in service in the same quarter of the tax year.
• Mid-month convention. Property subject to the mid-month convention can only be grouped into a GAA with property placed in service in the same month of the tax year.
• Passenger automobiles. Passenger automobiles subject to the limits on passenger automobile depreciation must be grouped into a separate GAA.

Figuring Depreciation for a GAA

After you have set up a GAA, you generally figure the MACRS depreciation for it by using the applicable depreciation method, recovery period, and convention for the property in the GAA. For each GAA, record the depreciation allowance in a separate depreciation reserve account.

Passenger automobiles.

To figure depreciation on passenger automobiles in a GAA, apply the deduction limits discussed in chapter 5 under Do the Passenger Automobile Limits Apply. Multiply the amount determined using these limits by the number of automobiles originally included in the account, reduced by the total number of automobiles removed from the GAA as discussed in Terminating GAA Treatment, later.

Disposing of GAA Property

When you dispose of property included in a GAA, the following rules generally apply.

• Neither the unadjusted depreciable basis (defined later) nor the depreciation reserve account of the GAA is affected. You continue to depreciate the account as if the disposition had not occurred.
• The property is treated as having an adjusted basis of zero, so you cannot realize a loss on the disposition. If the property is transferred to a supplies, scrap, or similar account, its basis in that account is zero.
• Any amount realized on the disposition is treated as ordinary income, up to the limit discussed later under Treatment of amount realized.

However, these rules do not apply to any disposition described later under Terminating GAA Treatment.

Disposition.

Property in a GAA is considered disposed of when you do any of the following.

• Permanently withdraw it from use in your trade or business or from the production of income.
• Transfer it to a supplies, scrap, or similar account.
• Sell, exchange, retire, physically abandon, or destroy it.

The retirement of a structural component of real property is not a disposition.

Treatment of amount realized.

When you dispose of property in a GAA, you must recognize any amount realized from the disposition as ordinary income, up to a limit. The limit is:

1. The unadjusted depreciable basis of the GAA plus
2. Any expensed costs for property in the GAA that are subject to recapture as depreciation (not including any expensed costs for property that you removed from the GAA under the rules discussed later under Terminating GAA Treatment), minus
3. Any amount previously recognized as ordinary income upon the disposition of other property from the GAA.

Unadjusted depreciable basis.

The unadjusted depreciable basis of a GAA is the total of the unadjusted depreciable bases of all the property in the GAA. The unadjusted depreciable basis of an item of property in a GAA is the amount you would use to figure gain or loss on its sale, but figured without reducing your original basis by any depreciation allowed or allowable in earlier years. However, you do reduce your original basis by other amounts, including any amortization deduction, section 179 deduction, special depreciation allowance, and electric vehicle credit.

Expensed costs.

Expensed costs that are subject to recapture as depreciation include the following.

1. The section 179 deduction.
2. Amortization deductions for the following.
   1. Pollution control facilities.
   2. Removal of barriers for the elderly and disabled.
   3. Tertiary injectants.
   4. Reforestation expenses.

Terminating GAA Treatment

You must remove the following property from a GAA.

• Property you dispose of in a nonrecognition transaction or an abusive transaction.
• Property you dispose of in a qualifying disposition or in a disposition of all the property in the GAA, if you choose to terminate GAA treatment.
• Property you dispose of in a like-kind exchange or an involuntary conversion.
• Property you change to personal use.
• Property for which you must recapture any allowable credit or deduction, such as the investment credit, the credit for qualified electric vehicles, the section 179 deduction, or the deduction for clean-fuel vehicles and clean-fuel vehicle refueling property placed in service before January 1, 2006.

If you remove property from a GAA, you must make the following adjustments.

1. Reduce the unadjusted depreciable basis of the GAA by the unadjusted depreciable basis of the property as of the first day of the tax year in which the disposition, change in use, or recapture event occurs. You can use any reasonable method that is consistently applied to determine the unadjusted depreciable basis of the property you remove from a GAA.
2. Reduce the depreciation reserve account by the depreciation allowed or allowable for the property (computed in the same way as computed for the GAA) as of the end of the tax year immediately preceding the year in which the disposition, change in use, or recapture event occurs.

These adjustments have no effect on the recognition and character of prior dispositions subject to the rules discussed earlier under Disposing of GAA Property.

Nonrecognition transactions.

If you dispose of GAA property in a nonrecognition transaction, you must remove it from the GAA. The following are nonrecognition transactions.

• The receipt by one corporation of property distributed in complete liquidation of another corporation.
• The transfer of property to a corporation solely in exchange for stock in that corporation if the transferor is in control of the corporation immediately after the exchange.
• The transfer of property by a corporation that is a party to a reorganization in exchange solely for stock and securities in another corporation that is also a party to the reorganization.
• The contribution of property to a partnership in exchange for an interest in the partnership.
• The distribution of property (including money) from a partnership to a partner.
• Any transaction between members of the same affiliated group during any year for which the group makes a consolidated return.

Rules for recipient (transferee).

The recipient of the property (the person to whom it is transferred) must include your (the transferor's) adjusted basis in the property in a GAA. If you transferred either all of the property or the last item of property in a GAA, the recipient's basis in the property is the result of the following.

• The adjusted depreciable basis of the GAA as of the beginning of your tax year in which the transaction takes place, minus
• The depreciation allowable to you for the year of the transfer.

For this purpose, the adjusted depreciable basis of a GAA is the unadjusted depreciable basis of the GAA minus any depreciation allowed or allowable for the GAA.

Abusive transactions.

If you dispose of GAA property in an abusive transaction, you must remove it from the GAA. A disposition is an abusive transaction if it is not a nonrecognition transaction (described earlier) or a like-kind exchange or involuntary conversion and a main purpose for the disposition is to get a tax benefit or a result that would not be available without the use of a GAA. Examples of abusive transactions include the following.

1. A transaction with a main purpose of shifting income or deductions among taxpayers in a way that would not be possible without choosing to use a GAA to take advantage of differing effective tax rates.
2. A choice to use a GAA with a main purpose of disposing of property from the GAA so that you can use an expiring net operating loss or credit. For example, if you have a net operating loss carryover or a credit carryover, the following transactions will be considered abusive transactions unless there is strong evidence to the contrary.
   1. A transfer of GAA property to a related person.
   2. A transfer of GAA property under an agreement where the property continues to be used, or is available for use, by you.

Figuring gain or loss.

You must determine the gain, loss, or other deduction due to an abusive transaction by taking into account the property's adjusted basis. The adjusted basis of the property at the time of the disposition is the result of the following:

• The unadjusted depreciable basis of the property, minus
• The depreciation allowed or allowable for the property figured by using the depreciation method, recovery period, and convention that applied to the GAA in which the property was included.

1. The depreciation allowed or allowable for the property, including any expensed cost (such as section 179 deductions or the additional depreciation allowed or allowable for the property).
2. The result of the following:
   1. The original unadjusted depreciable basis of the GAA (plus, for section 1245 property originally included in the GAA, any expensed cost), minus
   2. The total gain previously recognized as ordinary income on the disposition of property from the GAA.

Qualifying dispositions.

If you dispose of GAA property in a qualifying disposition, you can choose to remove the property from the GAA. A qualifying disposition is one that does not involve all the property, or the last item of property, remaining in a GAA and that is described by any of the following.

1. A disposition that is a direct result of fire, storm, shipwreck, other casualty, or theft.
2. A charitable contribution for which a deduction is allowed.
3. A disposition that is a direct result of a cessation, termination, or disposition of a business, manufacturing or other income-producing process, operation, facility, plant, or other unit (other than by transfer to a supplies, scrap, or similar account).
4. A nontaxable transaction other than a nonrecognition transaction (described earlier), a like-kind exchange or involuntary conversion, or a transaction that is nontaxable only because it is a disposition from a GAA.

If you choose to remove the property from the GAA, figure your gain, loss, or other deduction resulting from the disposition in the manner described earlier under Abusive transactions.

Like-kind exchanges and involuntary conversions.

Disposition of all property in a GAA.

If you dispose of all the property, or the last item of property, in a GAA, you can choose to end the GAA. If you make this choice, you figure the gain or loss by comparing the adjusted depreciable basis of the GAA with the amount realized. If there is a gain, the amount subject to recapture as ordinary income is limited to the result of the following.

• The depreciation allowed or allowable for the GAA, including any expensed cost (such as section 179 deductions or the additional depreciation allowed or allowable for the GAA), minus
• The total gain previously recognized as ordinary income on the disposition of property from the GAA.

Like-kind exchanges and involuntary conversions.

If you dispose of all the property or the last item of property in a GAA as a result of a like-kind exchange or involuntary conversion, the GAA terminates. You must figure the gain or loss in the manner described above under Disposition of all property in a GAA.

Electing To Use a GAA

An election to include property in a GAA is made separately by each owner of the property. This means that an election to include property in a GAA must be made by each member of a consolidated group and at the partnership or S corporation level (and not by each partner or shareholder separately).

How to make the election.

When to make the election.

You must make the election on a timely filed tax return (including extensions) for the year in which you place in service the property included in the GAA. However, if you timely filed your return for the year without making the election, you still can make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Attach the election to the amended return and write “Filed pursuant to section 301.9100-2” on the election statement. You must maintain records that identify the property included in each GAA, that establish the unadjusted depreciable basis and depreciation reserve of the GAA, and that reflect the amount realized during the year upon dispositions from each GAA. However, see chapter 2 for the recordkeeping requirements for section 179 property.

Revoking an election.

You can revoke an election to use a GAA only in the following situations.

• You include in the GAA property that generates foreign source income, both United States and foreign source income, or combined gross income of an FSC, a DISC, or a possessions corporation and its related supplier, and that inclusion results in a substantial distortion of income.
• You remove property from the GAA as described under Terminating GAA Treatment, earlier.

When Do You Recapture MACRS Depreciation?

When you dispose of property that you depreciated using MACRS, any gain on the disposition generally is 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 the following.

• Any section 179 deduction claimed on the property.
• Any deduction under section 179B of the Internal Revenue Code for capital costs to comply with Environmental Protection Agency sulfur regulations.
• Any deduction under section 179C of the Internal Revenue Code for certain qualified refinery property placed in service after August 8, 2005.
• Any deduction under section 179D of the Internal Revenue Code for certain energy efficient commercial building property placed in service after December 31, 2005.
• Any deduction under section 179E of the Internal Revenue Code for qualified advanced mine safety equipment property placed in service after December 20, 2006.
• Any deduction under section 190 of the Internal Revenue Code for removal of barriers to the disabled and the elderly.
• Any deduction under section 193 of the Internal Revenue Code for tertiary injectants.
• Any special depreciation allowance previously allowed or allowable for the property (unless you elected not to claim it).

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. For more information on depreciation recapture, see Publication 544.