Which Recovery Period Applies?(p38)

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.

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

Property Class	Recovery Period
3-year property		3 years	1
5-year property		5 years
7-year property		7 years
10-year property		10 years
15-year property		15 years	2
20-year property		20 years
25-year property		25 years	3
Residential rental property		27.5 years
Nonresidential real property		39 years	4
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).

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.

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.

The recovery periods for qualified property you placed in service on an Indian reservation after 1993 and before 2012 are shorter than those listed earlier. The following table shows these shorter recovery periods.

Property Class	Recovery 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 property	12 years
Nonresidential real property	22 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 years	A-21
3 years	A-1, A-2, A-3, A-4, or A-5
4 years	A-22
6 years	A-23
9 years	A-14, A-15, A-16, A-17, or A-18
12 years	A-14, A-15, A-16, A-17, or A-18
22 years	A-24

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).

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.

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.

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.

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.

Property	Recovery 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 life	12 years
Natural gas gathering lines	14 years
Single purpose agricultural and horticultural structures	15 years
Any tree or vine bearing fruit or nuts	20 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 electricity	30 years
Natural gas distribution lines	35 years
Any qualified leasehold improvement property	39 years
Any qualified restaurant property	39 years
Nonresidential real property	40 years
Residential rental property	40 years
Section 1245 real property not listed in Appendix B	40 years
Railroad grading and tunnel bore	50 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.

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.

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.

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.