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Publication 946
taxmap/pubs/p946-014.htm#en_us_publink1000299491

Chapter 3
Claiming the Special Depreciation Allowance(p24)

taxmap/pubs/p946-014.htm#en_us_publink1000299492Introduction

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 2013, you can take an additional 50% 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.
Tax Tip
Corporations can elect to accelerate certain 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, later.
See chapter 6 for information about getting publications and forms.
taxmap/pubs/p946-014.htm#en_us_publink1000299495

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_publink1000299521

Qualified Reuse and Recycling Property(p25)

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_publink1000299522

Excepted Property(p25)

rule
Qualified reuse and recycling property does not include any of the following.
taxmap/pubs/p946-014.htm#en_us_publink1000299524

Qualified Cellulosic Biofuel Plant Property(p25)

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 3, 2013.
Note.For property placed in service after January 2, 2013, and before January 1, 2014, you can take a 50% special depreciation allowance for qualified second generation biofuel plant property that is used solely in the United States to produce second generation biofuel (as defined in section 40(b)(6)(E)). The other requirements for qualified second generation biofuel plant property to be eligible for the special depreciation allowance are identical to the requirements discussed for Qualified Cellulosic Biofuel Plant Property above.
taxmap/pubs/p946-014.htm#en_us_publink1000299525

Special Rules(p26)

rule
taxmap/pubs/p946-014.htm#en_us_publink1000299526

Sale-leaseback.(p26)

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_publink1000299527

Syndicated leasing transactions.(p26)

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_publink1000299528

Excepted Property(p26)

rule
Qualified cellulosic biofuel plant property does not include any of the following.
taxmap/pubs/p946-014.htm#en_us_publink10004404

Qualified Disaster Assistance Property(p26)

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 in 2009. 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. The property is nonresidential real property or residential real property placed in service before January 1, 2014, in a federally declared disaster area in which the disaster occurred in 2009.
  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 fourth calendar year.
  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 in 2009.
  8. It is not excepted property (explained later in Excepted Property).
taxmap/pubs/p946-014.htm#en_us_publink10004409

Special Rules(p26)

rule
taxmap/pubs/p946-014.htm#en_us_publink10004410

Sale-leaseback.(p26)

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_publink10004411

Syndicated leasing transactions.(p27)

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_publink10004412

Excepted Property(p27)

rule
Qualified disaster assistance property does not include any of the following.
taxmap/pubs/p946-014.htm#en_us_publink10004418

Qualified revitalization building.(p27)

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_publink10004419

Gambling or animal racing property.(p27)

rule
Gambling or animal racing property includes the following personal and real property.
taxmap/pubs/p946-014.htm#en_us_publink1000299536

Certain Qualified Property Acquired After December 31, 2007(p27)

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 later).
  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, 2014 (before January 1, 2015, 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_publink10003071

Qualified leasehold improvement property.(p28)

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_publink10003072
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_publink1000299537

Long Production Period Property(p28)

rule
To be qualified property, long production period property must meet the following requirements.
taxmap/pubs/p946-014.htm#en_us_publink1000299538

Noncommercial Aircraft(p28)

rule
To be qualified property, noncommercial aircraft must meet the following requirements.
taxmap/pubs/p946-014.htm#en_us_publink1000299539

Special Rules(p28)

rule
taxmap/pubs/p946-014.htm#en_us_publink1000299540

Sale-leaseback.(p28)

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_publink1000299541

Syndicated leasing transactions.(p29)

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_publink1000299542

Excepted Property(p29)

rule
Qualified property does not include any of the following.