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Publication 946, How to Depreciate Property Userid: CPM Schema: tipx Leadpct: 100% Pt. size: 10 Draft Ok to Print AH XSL/XML Fileid: … tions/P946/2020/A/XML/Cycle02/source (Init. & Date) _______ Page 1 of 113 11:15 - 17-Mar-2021 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Department of the Treasury Contents Internal Revenue Service Future Developments ....................... 2 Publication 946 What’s New for 2020 ....................... 2 Cat. No. 13081F What's New for 2021 ........................ 2 Reminders ............................... 2 How To Introduction .............................. 2 Chapter 1. Overview of Depreciation .......... 3 Depreciate What Property Can Be Depreciated? .......... 4 What Property Cannot Be Depreciated? ........ 6 When Does Depreciation Begin and End? ...... 7 Property What Method Can You Use To Depreciate Your Property? ........................ 8 What Is the Basis of Your Depreciable • Section 179 Deduction Property? ........................... 11 • Special Depreciation How Do You Treat Repairs and Improvements? ...................... 13 Allowance Do You Have To File Form 4562? ........... 13 • MACRS How Do You Correct Depreciation Deductions? ......................... 13 • Listed Property Chapter 2. Electing the Section 179 Deduction ........................ 15 For use in preparing What Property Qualifies? .................. 15 What Property Does Not Qualify? ........... 17 2020 Returns How Much Can You Deduct? ............... 17 How Do You Elect the Deduction? ........... 22 When Must You Recapture the Deduction? .... 22 Chapter 3. Claiming the Special Depreciation Allowance ................. 23 What Is Qualified Property? ................ 23 How Much Can You Deduct? ............... 26 How Can You Elect Not To Claim an Allowance? ......................... 27 When Must You Recapture an Allowance? ..... 27 Chapter 4. Figuring Depreciation Under MACRS ........................ 28 Which Depreciation System (GDS or ADS) Applies? ........................... 28 Which Property Class Applies Under GDS? .... 29 What Is the Placed in Service Date? .......... 32 What Is the Basis for Depreciation? .......... 32 Which Recovery Period Applies? ............ 32 Which Convention Applies? ................ 35 Which Depreciation Method Applies? ......... 35 How Is the Depreciation Deduction Figured? ... 36 How Do You Use General Asset Accounts? .... 48 When Do You Recapture MACRS Depreciation? ........................ 52 Chapter 5. Additional Rules for Get forms and other information faster and easier at: Listed Property ........................ 53 • IRS.gov (English) • IRS.gov/Korean (한국어) What Is Listed Property? .................. 53 • IRS.gov/Spanish (Español) • IRS.gov/Russian (Pусский) • IRS.gov/Chinese (中文) • IRS.gov/Vietnamese (Tiếng Việt) Can Employees Claim a Deduction? ......... 54 Mar 17, 2021 Page 2 of 113 Fileid: … tions/P946/2020/A/XML/Cycle02/source 11:15 - 17-Mar-2021 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. What Is the Business-Use Requirement? ...... 55 $10,100, if the special depreciation allowance does not Do the Passenger Automobile Limits Apply? .... 60 apply. See Maximum Depreciation Deduction in chap- What Records Must Be Kept? .............. 64 ter 5. How Is Listed Property Information Reported? .......................... 65 Chapter 6. How To Get Tax Help ............. 66 What's New for 2021 Appendix A .............................. 70 Section 179 deduction dollar limits. For tax years be- ginning in 2021, the maximum section 179 expense de- Appendix B .............................. 98 duction is $1,050,000. This limit is reduced by the amount by which the cost of section 179 property placed in serv- Glossary ............................... 109 ice during the tax year exceeds $2,620,000. Index ................................. 111 Also, the maximum section 179 expense deduction for sport utility vehicles placed in service in tax years begin- ning in 2021 is $26,200. Future Developments Recovery period for certain race horses. The 3-year recovery period for race horses 2 years old or younger will For the latest information about developments related to not apply to horses placed in service after December 31, Pub. 946, such as legislation enacted after this publication 2021. was published, go to IRS.gov/Pub946. Accelerated depreciation for qualified Indian reser- vation property. The accelerated recovery period for qualified Indian reservation property will not apply to prop- What’s New for 2020 erty placed in service after December 31, 2021. Section 179 deduction dollar limits. For tax years be- ginning in 2020, the maximum section 179 expense de- Reminders duction is $1,040,000 ($1,075,000 for qualified enterprise zone property). This limit is reduced by the amount by Photographs of missing children. The Internal Reve- which the cost of section 179 property placed in service nue Service is a proud partner with the National Center for during the tax year exceeds $2,590,000. See Dollar Limits Missing & Exploited Children® (NCMEC). Photographs of in chapter 2. missing children selected by the Center may appear in Also, the maximum section 179 expense deduction for this publication on pages that would otherwise be blank. sport utility vehicles placed in service in tax years begin- You can help bring these children home by looking at the ning in 2020 is $25,900. photographs and calling 1-800-THE-LOST The increased section 179 deduction for an enterprise (1-800-843-5678) if you recognize a child. zone business has been terminated for property placed in service in tax years beginning after December 31, 2020. Extension of the treatment for certain race horses. Introduction The 3-year recovery period for race horses 2 years old or younger has been extended to apply to horses placed in This publication explains how you can recover the cost of service before January 1, 2022. See Which Property business or income-producing property through deduc- Class Applies in chapter 4. tions for depreciation (for example, the special deprecia- Extension of the treatment for qualified motorsports tion allowance and deductions under the Modified Accel- entertainment complexes. The treatment of qualified erated Cost Recovery System (MACRS)). It also explains motorsports entertainment complexes as 7-year property how you can elect to take a section 179 deduction, in- under MACRS has been extended to apply to complexes stead of depreciation deductions, for certain property and placed in service before January 1, 2026. See Which the additional rules for listed property. Property Class Applies in chapter 4. The depreciation methods discussed in this publi- Extension of the accelerated depreciation for quali- ! cation generally do not apply to property placed in fied Indian reservation property. The accelerated re- CAUTION service before 1987. For more information, see covery period for qualified Indian reservation property has Pub. 534, Depreciating Property Placed in Service Before been extended to apply to property placed in service be- 1987. fore January 1, 2022. See Indian Reservation Property in chapter 4. Definitions. Many of the terms used in this publication Depreciation limits on business vehicles. The total are defined in the Glossary near the end of the publica- section 179 deduction and depreciation you can deduct tion. Glossary terms used in each discussion under the for a passenger automobile, including a truck or van, you major headings are listed before the beginning of each use in your business and first placed in service in 2020 is discussion throughout the publication. $18,100, if the special depreciation allowance applies, or Page 2 Publication 946 (2020) Page 3 of 113 Fileid: … tions/P946/2020/A/XML/Cycle02/source 11:15 - 17-Mar-2021 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Do you need a different publication? The following ta- ble shows where you can get more detailed information when depreciating certain types of property. 1. For information See Publication: on depreciating: Overview of Depreciation A car 463, Travel, Gift, and Car Expenses Residential rental 527, Residential Rental Property property (Including Rental of Vacation Home) Introduction Office space in 587, Business Use of Your Home Depreciation is an annual income tax deduction that al- your home (Including Use by Daycare Providers) lows you to recover the cost or other basis of certain prop- Farm property 225, Farmer's Tax Guide erty over the time you use the property. It is an allowance for the wear and tear, deterioration, or obsolescence of the property. Comments and suggestions. We welcome your com- This chapter discusses the general rules for depreciat- ments about this publication and your suggestions for fu- ing property and answers the following questions. ture editions. You can send us comments through IRS.gov/ • What property can be depreciated? FormComments. Or you can write to: • What property cannot be depreciated? Internal Revenue Service • When does depreciation begin and end? Tax Forms and Publications • What method can you use to depreciate your prop- 1111 Constitution Ave. NW, IR-6526 erty? Washington, DC 20224 • What is the basis of your depreciable property? Although we can’t respond individually to each com- • How do you treat repairs and improvements? ment received, we do appreciate your feedback and will consider
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