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previous page Previous Page: Publication 946 - How to Depreciate Property - What Is the Basis for Depreciation?
next page Next Page: Publication 946 - How to Depreciate Property - Which Convention Applies?
 Use previous pagenext page to find additional occurrences of topic items.Index for this Publication
taxmap/pubs/p946-023.htm#en_us_publink1000107524

Which Recovery Period Applies?(p41)


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previous topic occurrence Depreciation next topic occurrence

Words you may need to know (see Glossary)

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.
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Recovery Periods Under GDS(p42)


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previous topic occurrence Recovery Periods Under GDS next topic occurrence

Under GDS, property that is not qualified Indian reservation property is depreciated over one of the following recovery periods.
Property ClassRecovery Period
3-year property  3 years1 
5-year property  5 years  
7-year property  7 years  
10-year property 10 years  
15-year property 15 years2 
20-year property 20 years  
25-year property  25 years3 
Residential rental property  27.5 years  
Nonresidential real property  39 years4 
15 years for qualified rent-to-own property placed in service before August 6, 1997.
239 years for property that is a retail motor fuels outlet placed in service before August 20, 1996 (31.5 years if placed in service before May 13, 1993), unless you elected to depreciate it over 15 years.
320 years for property placed in service before June 13, 1996, or under a binding contract in effect before June 10, 1996.
431.5 years for property placed in service before May 13, 1993 (or before January 1, 1994, if the purchase or construction of the property is under a binding contract in effect before May 13, 1993, or if construction began before May 13, 1993).
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).
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Office in the home.(p42)


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If your home is a personal-use single family residence and you begin to use part of your home as an office, depreciate that part of your home as nonresidential real property over 39 years (31.5 years if you began using it for business before May 13, 1993). However, if your home is an apartment in an apartment building that you own and the building is residential rental property as defined earlier under Which Property Class Applies Under GDS, depreciate the part used as an office as residential rental property over 27.5 years. See Publication 587 for a discussion of the tests you must meet to claim expenses, including depreciation, for the business use of your home.
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Home changed to rental use.(p42)


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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.
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Indian Reservation Property(p42)


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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.
Property ClassRecovery
Period
3-year property  2 years
5-year property  3 years
7-year property  4 years
10-year property  6 years
15-year property  9 years
20-year property12 years
Nonresidential real property22 years
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.
IF your recovery period is: THEN use the following table in Appendix A:
2 yearsA-21
3 yearsA1, A-2, A-3, A-4, or A-5
4 yearsA-22
6 yearsA-23
9 yearsA-14, A-15, A-16, A-17, or A-18
12 yearsA-14, A-15, A-16, A-17, or A-18
22 yearsA-24
taxmap/pubs/p946-023.htm#en_us_publink1000107529

Qualified property.(p42)


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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).
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Qualified infrastructure property.(p43)
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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. Infrastructure property includes, but is not limited to, roads, power lines, water systems, railroad spurs, and communications facilities.
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Related person.(p43)
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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.
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Indian reservation.(p43)


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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.
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Recovery Periods Under ADS(p43)


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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.
PropertyRecovery
Period
Rent-to-own property 4 years
Automobiles and light duty trucks 5 years
Computers and peripheral equipment 5 years
High technology telephone station equipment installed on customer premises 5 years
High technology medical equipment 5 years
Personal property with no class life12 years
Natural gas gathering lines14 years
Single purpose agricultural and horticultural structures15 years
Any tree or vine bearing fruit or nuts20 years
Initial clearing and grading land
improvements for gas utility property
20 years
Initial clearing and grading land
improvements for electric utility
transmission and distribution plants
25 years
Electric transmission property used in the transmission at 69 or more kilovolts of electricity30 years
Natural gas distribution lines35 years
Any qualified leasehold improvement property39 years
Any qualified restaurant property39 years
Nonresidential real property40 years
Residential rental property40 years
Section 1245 real property not listed in Appendix B40 years
Railroad grading and tunnel bore50 years
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.
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Tax-exempt use property subject to a lease.(p43)


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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.
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Additions and Improvements(p43)


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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.
EIC
If the improvement you make is qualified leasehold improvement property or qualified restaurant property (defined earlier under Which Property Class Applies Under GDS), the GDS recovery period is 15 years (39 years under ADS).
taxmap/pubs/p946-023.htm#en_us_publink1000107537

Example.(p43)

You own a rental home that you have been renting out since 1981. If you put an addition on the home and place the addition in service this year, you would use MACRS to figure your depreciation deduction for the addition. Under GDS, the property class for the addition is residential rental property and its recovery period is 27.5 years because the home to which the addition is made would be residential rental property if you had placed it in service this year.
previous pagePrevious Page: Publication 946 - How to Depreciate Property - What Is the Basis for Depreciation?
next pageNext Page: Publication 946 - How to Depreciate Property - Which Convention Applies?
 Use previous pagenext page to find additional occurrences of topic items.Index for this Publication