Words you may need to know (see Glossary)
- Class life
- Nonresidential real property
- Placed in service
- Property class
- Recovery period
- Residential rental property
- Section 1245 property
- Section 1250 property
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.
- 3-year property.
- Tractor units for over-the-road use.
- 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.)
- Any other horse (other than a race horse) over 12 years old when placed in service.
- Qualified rent-to-own property (defined later).
- 5-year property.
- Automobiles, taxis, buses, and trucks.
- Computers and peripheral equipment.
- Office machinery (such as typewriters, calculators, and copiers).
- Any property used in research and experimentation.
- Breeding cattle and dairy cattle.
- Appliances, carpets, furniture, etc., used in a residential rental real estate activity.
- Certain geothermal, solar, and wind energy property.
- Certain farm machinery or equipment (defined later) placed in service before January 1, 2010.
- 7-year property.
- Office furniture and fixtures (such as desks, files, and safes).
- Agricultural machinery and equipment.
- Any property that does not have a class life and has not been designated by law as being in any other class.
- Certain motorsports entertainment complex property placed in service before January 1, 2010 (defined later).
- 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.
- 10-year property.
- Vessels, barges, tugs, and similar water transportation equipment.
- Any single purpose agricultural or horticultural structure.
- Any tree or vine bearing fruits or nuts.
- Qualified small electric meter and qualified smart electric grid system (defined later) placed in service on or after October 3, 2008.
- 15-year property.
- Certain improvements made directly to land or added to it (such as shrubbery, fences, roads, sidewalks, and bridges).
- Any retail motor fuels outlet (defined later), such as a convenience store.
- Any municipal wastewater treatment plant.
- Any qualified leasehold improvement property (defined later) placed in service before January 1, 2010.
- Any qualified restaurant property (defined later) placed in service before January 1, 2010.
- Initial clearing and grading land improvements for gas utility property.
- 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.
- 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.
- Any qualified retail improvement property placed in service before January 1, 2010.
- 20-year property.
- Farm buildings (other than single purpose agricultural or horticultural structures).
- Municipal sewers not classified as 25-year property.
- Initial clearing and grading land improvements for electric utility transmission and distribution plants.
- 25-year property. This class is water utility property, which is either of the following.
- 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.
- Municipal sewers other than property placed in service under a binding contract in effect at all times since June 9, 1996.
- 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.
- 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.taxmap/pubs/p946-020.htm#en_us_publink1000107514
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. taxmap/pubs/p946-020.htm#en_us_publink1000107515
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.
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.
Any machinery or equipment (other than grain bins, cotton ginning assets, fences, or other land improvements) used in a farming business (as defined in section 263A(e)(4) of the Internal Revenue Code) where the original use begins with you after December 31, 2008, and is placed in service before January 1, 2010.taxmap/pubs/p946-020.htm#en_us_publink1000107517
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.taxmap/pubs/p946-020.htm#en_us_publink1000243554
A qualified smart electric grid 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.
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.
Generally, this is any improvement to an interior part of a building (placed in service before January 1, 2010) 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.
- A transaction to which section 381(a) applies,
- 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,
- 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
- 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.
- A complete liquidation of a subsidiary.
- A transfer to a corporation controlled by the transferor.
- An exchange of property by a corporation solely for stock or securities in another corporation in a reorganization.
Qualified restaurant property is any section 1250 property that is a building placed in service after December 31, 2008, and before January 1, 2010. Also, more than 50% of the building's square footage must be devoted to preparation of meals and seating for on-premise consumption of prepared meals.taxmap/pubs/p946-020.htm#en_us_publink1000138046
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.
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.