Classification of Property - Form 4562
Form 4562, titled "Depreciation and Amortization," is used to report depreciation, amortization, and other related deductions for business property. One of the key components of this form is the classification of property, which determines the recovery period and depreciation method under the Modified Accelerated Cost Recovery System (MACRS).
What is Property Classification?
Property classification refers to grouping assets into categories based on their useful life, which determines the depreciation schedule. The IRS assigns specific recovery periods to different types of property, which are used to calculate annual depreciation deductions.
Classification Based on Class Life
According to the instructions for Form 4562, property is classified based on its class life as follows:
- 4 years or less → 3-year property
- More than 4 but less than 10 years → 5-year property
- 10 or more but less than 16 years → 7-year property
- 16 or more but less than 20 years → 10-year property
- 20 or more but less than 25 years → 15-year property
- 25 years or more → 20-year property
This classification is essential for determining the correct depreciation method and recovery period. For detailed guidance, refer to Publication 946, which provides comprehensive information on MACRS and property classification.
Special Considerations for Certain Property Types
The instructions also note specific rules for certain types of property:
- Farming Equipment: New machinery or equipment used in farming, placed in service after 2017, qualifies for special treatment.
- Qualified Production Property (QPP): Includes tangible personal property that undergoes substantial transformation. QPP must be used in manufacturing or production and not be food or beverage prepared in the same building as the retail establishment where it is sold.
- Listed Property: Includes vehicles and other assets with potential personal use. Special rules apply for depreciation and use reporting.
How to Report Classification on Form 4562
To report property classification on Form 4562:
- Identify the class life of the property.
- Match it to the appropriate classification (e.g., 5-year, 7-year, etc.).
- Use the correct depreciation method and recovery period based on the classification.
- For qualified production property, report the MACRS depreciation on line 19j and attach a statement labeled “QPP.”
Note: Do not use Form 4562 to claim the energy-efficient commercial buildings deduction under Section 179D. Use Form 7205 instead.
Source:
Form 4562 - Depreciation and Amortization (2025)
Disclaimer: Always verify details with official Federal or State Department of Revenue Forms and Instructions.