Business Depreciation - Investment Use: Form 4562
Form 4562, titled "Depreciation and Amortization," is used by businesses and individuals to claim deductions for depreciation and amortization, make the Section 179 election to expense certain property, and report the business or investment use of listed property such as automobiles.
Purpose of Form 4562
- Claim deductions for depreciation and amortization.
- Make the Section 179 election to expense certain property.
- Report business or investment use of listed property (e.g., vehicles).
Key Instructions for Business Use
When filing for business depreciation, you must complete Form 4562 for each business or activity on your return. If you have multiple businesses, you may file a separate Form 4562 for each, or you can use a “Summary” form to consolidate total amounts from all businesses and allocate deductions accordingly.
For property placed in service during the tax year, you must determine the basis for depreciation by multiplying the cost of the property by the percentage of business/investment use. Then, subtract any applicable credits or deductions, such as the Section 179 expense deduction, from that amount.
Depreciation Methods and Conventions
- General Depreciation System (GDS): Uses the 200% declining balance method switching to straight-line. The half-year convention applies unless otherwise specified.
- Recovery Periods: Vary based on property type (e.g., 3, 5, 7, or 10 years).
- Depreciation Percentages: For example, for 5-year property under GDS, the depreciation percentages are: Year 1: 20.00%, Year 2: 32.00%, Year 3: 19.20%, etc.
Section 179 Election
You may elect to expense certain qualifying property under Section 179. The amount you elect to expense reduces the depreciable basis of the property. For corporations (other than S corporations), the deduction is limited to the smaller of the Section 179 amount or the corporation’s taxable income before certain deductions.
Listed Property and Special Rules
- Listed property includes vehicles and other assets used for both business and personal purposes.
- You must report the business/investment use percentage for listed property on Form 4562.
- Special rules apply to qualified production property (QPP), which includes machinery or equipment used in manufacturing or refining qualified products.
Amortization and Other Deductions
Form 4562 also allows reporting of amortization deductions for intangible assets (excluding Section 197 intangibles) and other costs such as lease acquisition costs or creative property costs. Amortization begins in the month the cost is incurred and is typically over a set period (e.g., 15 years for certain intangibles).
Important Notes
- Do not use Form 4562 to claim the energy-efficient commercial buildings deduction under Section 179D. Use Form 7205 instead.
- For farming businesses, new machinery or equipment placed in service after 2017 may qualify for special depreciation rules.
- Keep detailed records for federal tax purposes. The Depreciation Worksheet can assist in maintaining these records.
Source:
Form 4562 - Depreciation and Amortization (2025)
Disclaimer: Always verify details with official Federal or State Department of Revenue Forms and Instructions.