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Publication 946
taxmap/pubs/p946-014.htm#en_us_publink1000107458

Chapter 3
Claiming the Special Depreciation Allowance(p25)

taxmap/pubs/p946-014.htm#TXMP0c61ea0eIntroduction

You 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 2011, 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.
Deposit
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 33.
See chapter 6 for information about getting publications and forms.
taxmap/pubs/p946-014.htm#en_us_publink1000107459

What Is Qualified Property?(p25)

rule

Words you may need to know (see Glossary)

Your property is qualified property if it is one of the following.
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_publink1000270068

Certain Qualified Property Acquired After September 8, 2010(p26)

rule
You can take a 100% special depreciation allowance for certain property acquired after September 8, 2010. Your property is qualified property if it meets the following requirements.
  1. It is one of the following types of property.
    1. Tangible property depreciated under MACRS with a recovery period of 20 years or less.
    2. Water utility property.
    3. 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).
    4. Qualified leasehold improvement property (defined under Qualified leasehold improvement property, later).
  2. You must have acquired the property by purchase after September 8, 2010, with no binding written contract for the acquisition in effect before September 9, 2010. If you enter into a binding contract after September 8, 2010, and before January 1, 2012, to acquire (including to manufacture, construct, or produce) certain property with a long production period or certain aircraft, the property will be treated as timely acquired.
  3. The property must be placed in service for use in your trade or business of for the production of income before January 1, 2012 (January 1, 2013, for certain property with a long production period and certain aircraft (defined next)).
  4. The original use of the property must begin with you after September 8, 2010.
  5. It is not excepted property (explained later in Excepted Property).
For more information, see section 168(k)(5) of the Internal Revenue Code and Rev. Proc. 2011-26 of Internal Revenue Bulletin 2011-16, available at www.irs.gov/pub/irs-irbs/irb11-16.pdf.
EIC
If you elect out of the 100% special depreciation allowance for property acquired after September 8, 2010, and placed in service before January 1, 2012 (before January 1, 2013, for certain property with a long production period and certain aircraft), the property does not qualify for the 50% special depreciation allowance. See How Can You Elect Not To Claim an Allowance, later.
taxmap/pubs/p946-014.htm#en_us_publink1000270069

Long Production Period Property(p26)

rule
To be qualified property, long production period property must meet the following requirements.
taxmap/pubs/p946-014.htm#en_us_publink1000270070

Noncommercial Aircraft(p26)

rule
To be qualified property, noncommercial aircraft must meet the following requirements.
taxmap/pubs/p946-014.htm#en_us_publink1000270071

Special Rules(p26)

rule
taxmap/pubs/p946-014.htm#en_us_publink1000270066

Sale-leaseback.(p26)

rule
If you sold qualified property you placed in service after September 8, 2010, 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 September 9, 2010.
taxmap/pubs/p946-014.htm#en_us_publink1000270067

Syndicated leasing transactions.(p27)

rule
If qualified property is originally placed in service by a lessor after September 8, 2010, 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_publink1000270072

Excepted Property(p27)

rule
Qualified property does not include any of the following.
taxmap/pubs/p946-014.htm#en_us_publink1000107471

Specified Gulf Opportunity Zone Extension Property(p27)

rule
You 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 28. Also, specified GO Zone extension property cannot be excepted property, explained under Excepted Property on page 29.
taxmap/pubs/p946-014.htm#en_us_publink1000142159

Specified GO Zone extension property.(p27)

rule
Specified GO Zone extension property includes any of the following property.
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.
taxmap/pubs/p946-014.htm#en_us_publink1000107472

Qualified leasehold improvement property.(p27)

rule
Generally, this is any improvement to an interior part of a building that is nonresidential real property, if all the following requirements are met.
However, a qualified leasehold improvement does not include any improvement for which the expenditure is attributable to any of the following.
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_publink1000107473
Related persons.(p28)
For this purpose, the following are related persons.
  1. Members of an affiliated group.
  2. 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.
  3. A corporation and an individual who directly or indirectly owns 80% or more of the value of the outstanding stock of that corporation.
  4. Two corporations that are members of the same controlled group.
  5. 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.
  6. The grantor and fiduciary, and the fiduciary and beneficiary, of any trust.
  7. 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.
  8. 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.
  9. 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.
  10. A corporation and a partnership if the same persons own both of the following.
    1. 80% or more of the value of the outstanding stock of the corporation.
    2. 80% or more of the capital or profits interest in the partnership.
  11. The executor and beneficiary of any estate.
taxmap/pubs/p946-014.htm#en_us_publink1000107474

Other Tests To Be Met(p28)

rule
To be specified GO Zone extension property, the property must also meet all of the following tests.
taxmap/pubs/p946-014.htm#en_us_publink1000107475

Acquisition date test.(p28)

rule
You 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_publink1000107476

Placed in service date test.(p28)

rule
The 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_publink1000107478
Sale-leaseback.(p28)
If 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_publink1000107479
Syndicated leasing transactions.(p28)
If 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_publink1000107480

Substantial use test.(p28)

rule
Substantially 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.
EIC
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_publink1000107482

Original use test.(p28)

rule
The 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_publink1000107483

Excepted Property(p29)

rule
Specified GO Zone extension property does not include any of the following.
taxmap/pubs/p946-014.htm#en_us_publink1000107484

Qualified revitalization building.(p29)

rule
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 section 1400I(b) of the Internal Revenue Code.
taxmap/pubs/p946-014.htm#en_us_publink1000107485

Gambling or animal racing property.(p29)

rule
Gambling or animal racing property includes the following personal and real property.
taxmap/pubs/p946-014.htm#en_us_publink1000107486

Additional guidance.(p29)

rule
For additional guidance with respect to the 50% additional first-year depreciation deduction for qualified GO Zone property, see Notice 2006-77 on page 590 of Internal Revenue Bulletin 2006-40, available at www.irs.gov/pub/irs-irbs/irb06-40.pdf and Notice 2007-36 on page 1000 of Internal Revenue Bulletin 2007-17, available at www.irs.gov/pub/irs-irbs/irb07-17.pdf.
taxmap/pubs/p946-014.htm#en_us_publink1000154264

Qualified Reuse and Recycling Property(p29)

rule
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.
taxmap/pubs/p946-014.htm#en_us_publink1000154266

Excepted Property(p30)

rule
Qualified reuse and recycling property does not include any of the following.
taxmap/pubs/p946-014.htm#en_us_publink1000154267

Qualified Cellulosic Biofuel Plant Property(p30)

rule
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.
  1. The property is used in the United States solely to produce cellulosic biofuel.
  2. The original use of the property must begin with you after December 20, 2006.
  3. 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.
  4. 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.
taxmap/pubs/p946-014.htm#en_us_publink1000154271

Special Rules(p30)

rule
taxmap/pubs/p946-014.htm#en_us_publink1000154269

Sale-leaseback.(p30)

rule
If 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_publink1000154270

Syndicated leasing transactions.(p30)

rule
If 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_publink1000154272

Excepted Property(p30)

rule
Qualified cellulosic biofuel plant property does not include any of the following.
taxmap/pubs/p946-014.htm#en_us_publink1000154273

Qualified Disaster Assistance Property(p31)

rule
You can take a 50% 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.
  1. It is one of the following types of property.
    1. Tangible property depreciated under MACRS with a recovery period of 20 years or less.
    2. Water utility property.
    3. 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.)
    4. Qualified leasehold improvement property (defined under Qualified leasehold improvement property earlier).
    5. Nonresidential real property and residential rental property.
  2. 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.
  3. The property must rehabilitate property damaged, or replace property destroyed or condemned, as a result of the applicable federally declared disaster.
  4. The property must be similar in nature to, and located in the same county as, the rehabilitated or replaced property.
  5. The original use of the property within the applicable disaster area must have begun with you on or after the applicable disaster date.
  6. 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).
  7. 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.
  8. It is not excepted property (explained later in Excepted Property).
taxmap/pubs/p946-014.htm#en_us_publink1000154274

Special Rules(p31)

rule
taxmap/pubs/p946-014.htm#en_us_publink1000154276

Sale-leaseback.(p31)

rule
If 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_publink1000154277

Syndicated leasing transactions.(p31)

rule
If 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_publink1000154278

Excepted Property(p31)

rule
Qualified disaster assistance property does not include any of the following.
taxmap/pubs/p946-014.htm#en_us_publink1000154279

Certain Qualified Property Acquired After December 31, 2007(p32)

rule
You can take a 50% special depreciation deduction allowance for certain qualified property acquired after December 31, 2007. Your property is qualified property if it meets the following requirements.
  1. It is one of the following types of property.
    1. Tangible property depreciated under MACRS with a recovery period of 20 years or less.
    2. Water utility property.
    3. 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.)
    4. Qualified leasehold improvement property (defined under Qualified leasehold improvement property earlier).
  2. You must have acquired the property after December 31, 2007, with no binding written contract for the acquisition in effect before January 1, 2008.
  3. 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)).
  4. The original use of the property must begin with you after December 31, 2007.
  5. It is not excepted property (explained later in Excepted Property).
taxmap/pubs/p946-014.htm#en_us_publink1000154280

Long Production Period Property(p32)

rule
To be qualified property, long production period property must meet the following requirements.
taxmap/pubs/p946-014.htm#en_us_publink1000154281

Noncommercial Aircraft(p32)

rule
To be qualified property, noncommercial aircraft must meet the following requirements.
taxmap/pubs/p946-014.htm#en_us_publink1000154287

Special Rules(p32)

rule
taxmap/pubs/p946-014.htm#en_us_publink1000154289

Sale-leaseback.(p32)

rule
If 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_publink1000154290

Syndicated leasing transactions.(p32)

rule
If 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_publink1000154293

Excepted Property(p32)

rule
Qualified property does not include any of the following.