Publication 946
taxmap/pubs/p946-014.htm#en_us_publink1000107458You can take a special depreciation allowance to recover part
of the cost of qualified property (defined next), placed in service during the
tax year. The allowance applies only for the first year you place the property
in service. For qualified property placed in service in 2010, you can take an
additional 50% (or 100%, if applicable) special allowance. The allowance is an
additional deduction you can take after any section 179 deduction and before you
figure regular depreciation under MACRS for the year you place the property in
service.
This chapter explains what is qualified property. It also includes
rules regarding how to figure an allowance, how to elect not to claim an
allowance, and when you must recapture an allowance.
 | At the time this publication was released for print, the
IRS was considering guidance on the 100% special depreciation allowance. This
guidance will be published in later Internal Revenue Bulletins available at
www.irs.gov/irb. When this guidance is released, information will also
be available at
www.irs.gov/form4562. |
 | Corporations and certain automotive partnerships can elect
to accelerate certain research and minimum tax credits in lieu of claiming the
special depreciation allowance for eligible qualified property. See
Election to Accelerate Certain Credits in Lieu of the Special
Depreciation Allowance on page 31. |
See chapter 6 for information about getting publications and
forms.
taxmap/pubs/p946-014.htm#en_us_publink1000107459Words you may need to know (see Glossary)
- Business/investment use
- Improvement
- Nonresidential real property
- Placed in service
- Residential rental property
- Structural components
Your property is qualified property if it is one of the following.
- Specified Gulf Opportunity Zone (GO Zone) extension property.
- Qualified reuse and recycling property.
- Qualified cellulosic biofuel plant property.
- Qualified disaster assistance property.
- Certain qualified property placed in service after December
31, 2007.
The following discussions provide information about the types
of qualified property listed above for which you can take the special
depreciation allowance.
taxmap/pubs/p946-014.htm#en_us_publink1000107471You can take a 50% special depreciation allowance for specified
Gulf Opportunity Zone (GO Zone) extension property (defined below) placed in
service in specified portions of the GO Zone. Specified GO Zone extension
property must meet certain tests, explained under
Other Tests To Be Met
on page 26. Also, specified GO Zone extension property cannot be excepted
property, explained under
Excepted Property on page 27.
taxmap/pubs/p946-014.htm#en_us_publink1000142159Specified GO Zone extension property includes any of the following
property.
- Nonresidential real property or residential rental property
placed in service in specified portions of the GO Zone (discussed below) before
January 1, 2012, or
- Any of the following types of property placed in service in
a building described above before January 1, 2012:
- Tangible property depreciated under the modified accelerated
recovery system (MACRS) with a recovery period of 20 years or less. See
Which Method Can You Use To Depreciate Your Property in chapter 1.
- Water utility property, which is either (a) 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 or
(b) any municipal sewer.
- Computer software that is readily available for purchase
by the general public, is subject to a nonexclusive license, and has not been
substantially modified. The cost of some computer software is treated as part of
the cost of hardware and is depreciated under MACRS.
- Qualified leasehold improvement property, defined below.
In addition, substantially all (80% or more) of the use of the
property described in (1) through (4) above must be in the building and placed
in service no later than 90 days after the building is placed in service.
Specified portions of the GO Zone are those counties or parishes
in the GO Zone that are identified by the IRS as having more than 60% of the
occupied housing units damaged by the hurricanes occurring during 2005. For
guidance identifying the affected counties and parishes eligible for the
extension of the placed in service date, see Notice 2007-36 on page 1000 of the
Internal Revenue Bulletin 2007-17, available at
www.irs.gov/pub/irs-irbs/irb07-17.pdf.
Generally, this is any improvement to an interior part of a building that is
nonresidential real property, if all the following requirements are met.
- The improvement is made under or according to a lease by the
lessee (or any sublessee) or the lessor of that part of the building.
- That part of the building is to be occupied exclusively by
the lessee (or any sublessee) of that part.
- The improvement is placed in service more than 3 years after
the date the building was first placed in service by any person.
- The improvement is section 1250 property. See chapter 3 in
Publication 544, Sales and Other Dispositions of Assets, for the definition of
section 1250 property.
However, a qualified leasehold improvement does not include any
improvement for which the expenditure is attributable to any of the following.
- The enlargement of the building.
- Any elevator or escalator.
- Any structural component benefiting a common area.
- The internal structural framework of the building.
Generally, a binding commitment to enter into a lease is treated
as a lease and the parties to the commitment are treated as the lessor and
lessee. However, a lease between related persons is not treated as a lease.
taxmap/pubs/p946-014.htm#en_us_publink1000107473For this purpose, the following are related persons.
- Members of an affiliated group.
- An individual and a member of his or her family, including
only a spouse, child, parent, brother, sister, half-brother, half-sister,
ancestor, and lineal descendant.
- A corporation and an individual who directly or indirectly
owns 80% or more of the value of the outstanding stock of that corporation.
- Two corporations that are members of the same controlled group.
- A trust fiduciary and a corporation if 80% or more of the
value of the outstanding stock is directly or indirectly owned by or for the
trust or grantor of the trust.
- The grantor and fiduciary, and the fiduciary and beneficiary,
of any trust.
- The fiduciaries of two different trusts, and the fiduciaries
and beneficiaries of two different trusts, if the same person is the grantor of
both trusts.
- A tax-exempt educational or charitable organization and any
person (or, if that person is an individual, a member of that person's family)
who directly or indirectly controls the organization.
- Two S corporations, and an S corporation and a regular corporation,
if the same persons own 80% or more of the value of the outstanding stock of
each corporation.
- A corporation and a partnership if the same persons own both
of the following.
- 80% or more of the value of the outstanding stock of the
corporation.
- 80% or more of the capital or profits interest in the partnership.
- The executor and beneficiary of any estate.
To be specified GO Zone extension property, the property must
also meet all of the following tests.
taxmap/pubs/p946-014.htm#en_us_publink1000107475You must have acquired the property by purchase (as discussed
under
Property Acquired by Purchase
in chapter 2) after August 27, 2005, with no binding written contract for the
acquisition in effect before August 28, 2005.
Property you manufacture, construct, or produce for your own
use meets this test if you began the manufacture, construction, or production of
the property after August 27, 2005. Property that is manufactured, constructed,
or produced for your use by another person under a written binding contract
entered into before the manufacture, construction, or production of the property
is considered to be manufactured, constructed, or produced by you.
taxmap/pubs/p946-014.htm#en_us_publink1000107476The property must be placed in service before January 1, 2012,
for use in your trade or business located in specified portions of the GO Zone.
taxmap/pubs/p946-014.htm#en_us_publink1000107478If you sold specified GO Zone extension property you placed in
service after August 27, 2005, and leased it back within 3 months after you
originally placed it in service, the property is treated as originally placed in
service no earlier than the date it is used by you under the leaseback.
The property will not qualify for the special allowance if the
lessee or a related person to the lessee or lessor had a written binding
contract in effect for the acquisition of the property before August 28, 2005.
taxmap/pubs/p946-014.htm#en_us_publink1000107479If the property is originally placed in service by a lessor after
August 27, 2005, the property is sold within 3 months of the date it was placed
in service, and the user of the property does not change, then the property is
treated as originally placed in service by the taxpayer no earlier than the date
of the last sale.
Multiple units of property subject to the same lease will be
treated as originally placed in service no earlier than the date of sale if the
property is sold within 3 months after the final unit is placed in service and
the period between the times the first and last units are placed in service does
not exceed 12 months.
taxmap/pubs/p946-014.htm#en_us_publink1000107480Substantially all (80% or more during each tax year) of the use
of the property must be in the specified areas of GO Zone and in the active
conduct of your trade or business in the GO Zone.
| If the property is held for the production of income, the
property does not satisfy this substantial use test and does not qualify for the
special depreciation allowance. |
taxmap/pubs/p946-014.htm#en_us_publink1000107482The original use of the property in the GO Zone must have begun
with you after August 27, 2005.
Used property can be specified GO Zone extension property if
it has not previously been used within the specified portions of the GO Zone.
Also, additional capital expenditures you incurred after August 27, 2005, to
recondition or rebuild your property meet the original use test if the original
use of the property in the GO Zone began with you. For further guidance on the
original use requirement for the GO Zone additional first year depreciation
deduction, see Notice 2007-36 on page 1000 of Internal Revenue Bulletin 2007-17.
If you sold property you placed in service after August 27, 2005,
and you leased it back within 3 months after you originally placed the property
in service, the lessor is considered to be the original user of the property.
If you acquire new property for personal use and then use the
property in your trade or business or for the production of income, you are
considered to be the original user.
For special rules identifying the original user of property involved in certain
other transactions and the original user of fractional interests in property,
see Regulations section 1.168(k)-1(b)(3).
taxmap/pubs/p946-014.htm#en_us_publink1000107483Specified GO Zone extension property does not include any of
the following.
- Property required to be depreciated using the Alternative
Depreciation System (ADS). This includes listed property used 50% or less in a
qualified business use. For other property required to be depreciated using ADS,
see
Required use of ADS under
Which Depreciation System (GDS or ADS) Applies, in chapter 4.
- Property any portion of which is financed with the proceeds
of a tax-exempt obligation under section 103 of the Internal Revenue Code.
- Any qualified revitalization building (described below) placed
in service before January 1, 2010, for which you have elected to claim a
commercial revitalization deduction for qualified revitalization expenditures.
- Any property used in connection with any private or commercial
golf course, country club, massage parlor, hot tub facility, suntan facility, or
any store, the principal business of which is the sale of alcoholic beverages
for consumption off premises.
- Any gambling or animal racing property (defined below).
- Property for which you elected not to claim any special depreciation
allowance (discussed later).
- Property placed in service and disposed of in the same tax
year.
- Property converted from business use to personal use in the
same tax year it is acquired. Property converted from personal use to business
use in the same or later tax year may be qualified GO Zone property.
- Other bonus depreciation property to which section 168(k)
of the Internal Revenue Code applies.
This is a commercial building and its structural components that
you placed in service in a renewal community before January 1, 2010. If the
building is new, the original use of the building must begin with you. If the
building is not new, you must substantially rehabilitate the building and then
place it in service. For more information, including definitions of
substantially rehabilitated building and qualified revitalization expenditure,
see Publication 954, Tax Incentives for Distressed Communities.
taxmap/pubs/p946-014.htm#en_us_publink1000107485Gambling or animal racing property includes the following personal
and real property.
- Any equipment, furniture, software, or other property used
directly in connection with gambling, the racing of animals, or the on-site
viewing of such racing.
- Any real property determined by square footage (other than
any portion that is less than 100 square feet) that is dedicated to gambling,
the racing of animals, or the on-site viewing of such racing.
You can take a 50% special depreciation allowance for qualified
reuse and recycling property. Qualified reuse and recycling property is any
machinery or equipment (not including buildings or real estate), along with any
appurtenance, that is used exclusively to collect, distribute, or recycle
qualified reuse and recyclable materials (as defined in section 168(m)(3)(B) of
the Internal Revenue Code). Qualified reuse and recycling property also includes
software necessary to operate such equipment. The property must meet the
following requirements.
- The property must be depreciated under MACRS.
- The property must have a useful life of at least 5 years.
- The original use of the property must begin with you after
August 31, 2008.
- You must have acquired the property by purchase (as discussed
under
Property Acquired by Purchase
in chapter 2) after August 31, 2008, with no binding written contract for the
acquisition in effect before September 1, 2008.
- The property must be placed in service for use in your trade
or business after August 31, 2008.
Property you manufacture, construct, or produce for your own
use meets this test if you began the manufacture, construction, or production of
the property after August 31, 2008. Property that is manufactured, constructed,
or produced for your use by another person under a written binding contract
entered into before the manufacture, construction, or production of the property
is considered to be manufactured, constructed, or produced by you.
taxmap/pubs/p946-014.htm#en_us_publink1000154266Qualified reuse and recycling property does not include any of
the following.
- Any rolling stock or other equipment used to transport reuse
or recyclable materials.
- Property required to be depreciated using the Alternative
Depreciation System (ADS). For other property required to be depreciated using
ADS, see
Required use of ADS under
Which Depreciation System (GDS or ADS) Applies, in chapter 4.
- Other bonus depreciation property to which section 168(k)
of the Internal Revenue Code applies.
- Property for which you elected not to claim any special depreciation
allowance (discussed later).
- Property placed in service and disposed of in the same tax
year.
- Property converted from business use to personal use in the
same tax year acquired. Property converted from personal use to business use in
the same or later tax year may be qualified reuse and recycling property.
You can take a 50% special depreciation allowance for qualified
cellulosic biofuel plant property. Cellulosic biofuel is any liquid fuel which
is produced from any lignocellulosic or hemicellulosic matter that is available
on a renewable or recurring basis. Examples include bagasse (from sugar cane),
corn stalks, and switchgrass. The property must meet the following requirements.
- The property is used in the United States solely to produce
cellulosic biofuel.
- The original use of the property must begin with you after
December 20, 2006.
- You must have acquired the property by purchase (as discussed
under
Property Acquired by Purchase
in chapter 2) after December 20, 2006, with no binding written contract for
acquisition in effect before December 21, 2006.
- The property must be placed in service for use in your trade
or business or for the production of income after October 3, 2008, and before
January 1, 2013.
Property you manufacture, construct, or produce for your own
use meets this test if you began the manufacture, construction, or production of
the property after December 20, 2006. Property that is manufactured,
constructed, or produced for your use by another person under a written binding
contract entered into before the manufacture, construction, or production of the
property is considered to be manufactured, constructed, or produced by you.
taxmap/pubs/p946-014.htm#en_us_publink1000154269If you sold qualified cellulosic biofuel plant property you placed
in service after October 3, 2008, and leased it back within 3 months after you
originally placed it in service, the property is treated as originally placed in
service no earlier than the date it is used by you under the leaseback.
The property will not qualify for the special allowance if the
lessee or a related person to the lessee or lessor had a written binding
contract in effect for the acquisition of the property before December 21, 2006.
taxmap/pubs/p946-014.htm#en_us_publink1000154270If qualified cellulosic biofuel plant property is originally
placed in service by a lessor after October 3, 2008, the property is sold within
3 months of the date it was placed in service, and the user of the property does
not change, then the property is treated as originally placed in service by the
taxpayer no earlier than the date of the last sale.
Multiple units of property subject to the same lease will be
treated as originally placed in service no earlier than the date of sale if the
property is sold within 3 months after the final unit is placed in service and
the period between the times the first and last units are placed in service does
not exceed 12 months.
taxmap/pubs/p946-014.htm#en_us_publink1000154272Qualified cellulosic biofuel plant property does not include
any of the following.
- Property placed in service and disposed of in the same tax
year.
- Property converted from business use to personal use in the
same tax year it is acquired. Property converted from personal use to business
use in the same or later tax year may be qualified cellulosic biomass ethanol
plant property.
- Property required to be depreciated using the Alternative
Depreciation System (ADS). For other property required to be depreciated using
ADS, see
Required use of ADS under
Which Depreciation System (GDS or ADS) Applies, in chapter 4.
- Property any portion of which is financed with the proceeds
of any obligation the interest on which is exempt from tax under section 103 of
the Internal Revenue Code.
- Property for which you elected not to claim any special depreciation
allowance (discussed later).
- Property for which a deduction was taken under section 179C
for certain qualified refinery property.
- Other bonus depreciation property to which section 168(k)
of the Internal Revenue Code applies.
You can take a special depreciation allowance for qualified disaster
assistance property placed in service in federally declared disaster areas in
which the disaster occurred before January 1, 2010. A list of the federally
declared disaster areas is available at the FEMA website at
www.fema.gov. Your property is qualified disaster assistance property if
it meets the following requirements.
- It is one of the following types of property.
- Tangible property depreciated under MACRS with a recovery
period of 20 years or less.
- Water utility property.
- Computer software that is readily available for purchase
by the general public, is subject to a nonexclusive license, and has not been
substantially modified. (The cost of some computer software is treated as part
of the cost of hardware and is depreciated under MACRS.)
- Qualified leasehold improvement property (defined under
Qualified leasehold improvement property on page 26).
- Nonresidential real property and residential rental property.
- You must have acquired the property by purchase (as discussed
under
Property Acquired by Purchase
in chapter 2) on or after the applicable disaster date, with no binding written
contract for the acquisition in effect before the applicable disaster date.
- The property must rehabilitate property damaged, or replace
property destroyed or condemned, as a result of the applicable federally
declared disaster.
- The property must be similar in nature to, and located in
the same county as, the rehabilitated or replaced property.
- The original use of the property within the applicable disaster
area must have begun with you on or after the applicable disaster date.
- The property is placed in service by you on or before the
date which is the last day of the third calendar year following the applicable
disaster date (the fourth calendar year in the case of nonresidential real
property and residential rental property).
- Substantially all (80% or more) of the use of the property
must be in the active conduct of your trade or business in a federally declared
disaster area, occurring before January 1, 2010.
- It is not excepted property (explained later in
Excepted Property).
Property you manufacture, construct, or produce for your own
use meets this test if you began the manufacture, construction, or production of
the property after the applicable disaster date. Property that is manufactured,
constructed, or produced for your use by another person under a written binding
contract entered into before the manufacture, construction, or production of the
property is considered to be manufactured, constructed, or produced by you.
taxmap/pubs/p946-014.htm#en_us_publink1000154276If you sold qualified disaster assistance property you placed
in service after the applicable disaster date and leased it back within 3 months
after you originally placed it in service, the property is treated as originally
placed in service no earlier than the date it is used by you under the
leaseback.
The property will not qualify for the special allowance if the
lessee or a related person to the lessee or lessor had a written binding
contract in effect for the acquisition of the property before the applicable
disaster date.
taxmap/pubs/p946-014.htm#en_us_publink1000154277If qualified disaster assistance property is originally placed
in service by a lessor after the applicable disaster date, the property is sold
within 3 months of the date it was placed in service, and the user of the
property does not change, then the property is treated as originally placed in
service by the taxpayer no earlier than the date of the last sale.
Multiple units of property subject to the same lease will be
treated as originally placed in service no earlier than the date of sale if the
property is sold within 3 months after the final unit is placed in service and
the period between the times the first and last units are placed in service does
not exceed 12 months.
taxmap/pubs/p946-014.htm#en_us_publink1000154278Qualified disaster assistance property does not include any of
the following.
- Property required to be depreciated using the Alternative
Depreciation System (ADS). For other property required to be depreciated using
ADS, see
Required use of ADS under
Which Depreciation System (GDS or ADS) Applies, in chapter 4.
- Property any portion of which is financed with the proceeds
of a tax-exempt obligation under section 103 of the Internal Revenue Code.
- Any qualified revitalization building (defined earlier under
Qualified revitalization building
on page 27) placed in service before January 1, 2010, for which you have elected
to claim a commercial revitalization deduction for qualified revitalization
expenditures.
- Any property used in connection with any private or commercial
golf course, country club, massage parlor, hot tub facility, suntan facility, or
any store, the principal business of which is the sale of alcoholic beverages
for consumption off premises.
- Any property for which the special allowance under section
168(k) or section 1400N(d) of the Internal Revenue Code applies.
- Property for which you elected not to claim any special depreciation
allowance (discussed later).
- Property placed in service and disposed of in the same tax
year.
- Property converted from business use to personal use in the
same tax year acquired. Property converted from personal use to business use in
the same or later tax year may be qualified disaster assistance property.
- Any gambling or animal racing property (defined earlier under Excepted Property on page 27).
You can take a special depreciation deduction allowance for certain
qualified property acquired after December 31, 2007. Your property is qualified
property if it meets the following requirements.
- It is one of the following types of property.
- Tangible property depreciated under MACRS with a recovery
period of 20 years or less.
- Water utility property.
- Computer software that is readily available for purchase
by the general public, is subject to a nonexclusive license, and has not been
substantially modified. (The cost of some computer software is treated as part
of the cost of hardware and is depreciated under MACRS.)
- Qualified leasehold improvement property (defined under
Qualified leasehold improvement property on page 26).
- You must have acquired the property after December 31, 2007,
with no binding written contract for the acquisition of in effect before January
1, 2008.
- The property must be placed in service for use in your trade
or business or for the production of income before January 1, 2013 (before
January 1, 2014, for certain property with a long production period and certain
aircraft (defined next)).
- The original use of the property must begin with you after
December 31, 2007.
- It is not excepted property (explained later in
Excepted Property).
To be qualified property, long production period property must
meet the following requirements.
- It must meet the requirements of (2)–(5), above.
- The property has a recovery period of at least 10 years or
is transportation property. Transportation property is tangible personal
property used in the trade or business of transporting persons or property.
- The property is subject to section 263A of the Internal Revenue
Code.
- The property has an estimated production period exceeding
1 year and an estimated production cost exceeding $1,000,000.
To be qualified property, noncommercial aircraft must meet the
following requirements.
- It must meet the requirements in (2)-(5), above.
- The aircraft must not be tangible personal property used in
the trade or business of transporting persons or property (except for
agricultural or firefighting purposes).
- The aircraft must be purchased (as discussed under
Property Acquired by Purchase
in chapter 2) by a purchaser who at the time of the contract for purchase, makes
a nonrefundable deposit of the lesser of 10% of the cost or $100,000.
- The aircraft must have an estimated production period exceeding
four months and a cost exceeding $200,000.
Property you manufacture, construct, or produce for your own
use meets this test if you began the manufacture, construction, or production of
the property after December 31, 2007, and before January 1, 2013. Property that
is manufactured, constructed, or produced for your use by another person under a
written binding contract entered into before the manufacture, construction, or
production of the property is considered to be manufactured, constructed, or
produced by you.
taxmap/pubs/p946-014.htm#en_us_publink1000154289If you sold qualified property you placed in service after December
31, 2007, and leased it back within 3 months after you originally placed in
service, the property is treated as originally placed in service no earlier than
the date it is used by you under the leaseback.
The property will not qualify for the special depreciation allowance
if the lessee or a related person to the lessee or lessor had a written binding
contract in effect for the acquisition of the property before January 1, 2008.
taxmap/pubs/p946-014.htm#en_us_publink1000154290If qualified property is originally placed in service by a lessor
after December 31, 2007, the property is sold within 3 months of the date it was
placed in service, and the user of the property does not change, then the
property is treated as originally placed in service by the taxpayer no earlier
than the date of the last sale.
Multiple units of property subject to the same lease will be
treated as originally placed in service no earlier than the date of the last
sale if the property is sold within 3 months after the final unit is placed in
service and the period between the time the first and last units are placed in
service does not exceed 12 months.
taxmap/pubs/p946-014.htm#en_us_publink1000154293Qualified property does not include any of the following.
- Property placed in service and disposed of in the same tax
year.
- Property converted from business use to personal use in the
same tax year acquired. Property converted from personal use to business use in
the same or later tax year may be qualified property.
- Property required to be depreciated under the Alternative
Depreciation System (ADS). This includes listed property used 50% or less in a
qualified business use. For other property required to be depreciated using ADS,
see
Required use of ADS under
Which Depreciation System (GDS or ADS) Applies, in Chapter 4.
- Qualified restaurant property (as defined in section 168(e)(7)
of the Internal Revenue Code) placed in service before January 1, 2012.
- Qualified retail improvement property (as defined in section
168(e)(8) of the Internal Revenue Code) placed in service before January 1,
2012.
- Property for which you elected not to claim any special depreciation
allowance (discussed later).
- Property for which you elected to accelerate certain credits
in lieu of the special depreciation allowance (discussed next).
| At the time this publication was released for print, the
IRS was considering guidance on the 100% special depreciation allowance. This
guidance will be published in later Internal Revenue Bulletins available at
www.irs.gov/irb. When this guidance is released, information will also
be available at
www.irs.gov/form4562. |
Previous Page |
Table of Contents |
Index |
Next Page
