Form 4562 is used to claim deductions for depreciation and amortization, make the Section 179 election to expense certain property, and report information on the business or investment use of automobiles and other listed property. For assets placed in service during the 2025 tax year, the form includes specific sections for both the General Depreciation System (GDS) and the Alternative Depreciation System (ADS). The basis for depreciation in business or investment use is calculated by multiplying the cost or other basis of the property by the percentage of business/investment use, then subtracting any applicable deductions and only those credits that require a basis reduction under the Internal Revenue Code, such as Section 179 expense, special depreciation allowance, or applicable investment credit adjustments.
General Depreciation System (GDS) Basis for Depreciation
- For lines 19a through 19j, multiply the cost or other basis of the property by the percentage of business/investment use.
- Subtract any deductions allocable to the property, including the Section 179 expense deduction and any special depreciation allowance. Reduce basis only for credits that specifically require a reduction under the tax law.
- Refer to section 1016 and IRS Publication 946 for additional guidance on adjustments to depreciable basis.
Alternative Depreciation System (ADS) Basis for Depreciation
- Complete lines 20a through 20e for assets placed in service during the 2025 tax year and depreciated under ADS.
- ADS must be used for certain types of property, including tangible property used predominantly outside the United States, tax-exempt use property, tax-exempt bond-financed property, and property used in certain farming businesses when an election applies.
- For residential rental and nonresidential real property, the election to use ADS can be made separately by class of property.
Listed Property Basis for Depreciation
- For listed property (such as automobiles), multiply column (d) (cost or other basis) by the percentage in column (c) (business/investment use percentage).
- Subtract any Section 179 expense deduction and any special depreciation allowance. Reduce basis only for credits that require basis reduction under applicable law.
- If business use is 50% or less, the property must be depreciated using the Alternative Depreciation System (ADS), and Section 179 and bonus depreciation are not allowed.
Special Rules and Considerations
- General asset accounts can be used to simplify MACRS depreciation calculations. Assets in each account must be placed in service during the same tax year and have the same depreciation method, recovery period, and convention.
- When assets are included in a general asset account, gain or loss is generally not recognized on partial dispositions, and depreciation continues on the remaining account balance.
- Special rules apply to passenger automobiles, foreign-use property, assets converted to personal use, and certain dispositions or exchanges.
Source:
Form 4562 Instructions (PDF)
Disclaimer: Always verify details with current Federal or State Department of Revenue Forms and Instructions. Tax laws and regulations may change annually. For complex situations, consult a CPA or tax attorney.