How To Complete Form 4562

IRS Form 4562 is used to claim deductions for depreciation and amortization. It’s also used to expense certain types of property using an accelerated depreciation deduction under Section 179 of the Internal Revenue Code. A third use for this form is to give information on business use of vehicles and other types of property, called “listed property,” that can be used for both business and personal purposes.

How To Fill Out Form 4562

Form 4562 is divided into several sections, so you can select the ones that apply to your business. In each section, you’ll need to enter information to calculate the amount of depreciation or amortization for that section.

Part I: Section 179 Deductions

This is the Section 179 deduction, including Section 179 deductions for the listed property.

A Section 179 deduction is an additional depreciation deduction for all or part of depreciation in the first year you own and use some types of business property. It’s only available for tangible property, such as machinery and equipment, computer software, and some listed property, but not buildings or land.

You can’t use a Section 179 deduction for amortized property.

Section 179 deductions for eligible property are limited to $1.08 million, with an overall maximum of $2.7 million for all Section 179 property; the maximum for SUVs is $27,000.

Part II: Special (Bonus) Depreciation

This section is for the special (bonus) depreciation allowance. Listed property isn’t eligible for this depreciation deduction.

In addition to the Section 179 deduction, you may also be able to take a special (bonus) 100% first-year depreciation allowance. This allowance applies to new and used business assets with a recovery period of 20 years or less, including machinery, equipment, computers, appliances, and furniture.

Part III and Part IV: MACRS Depreciation and Totals

This is for MACRS—the modified accelerated cost recovery system—depreciation (not including listed property). In this section, you must separate types of property based on the recovery period and depreciation method. Depreciation on real estate rentals is included.

MACRS is the accelerated depreciation process used to recover the cost of business and investment property. It includes two systems: a general depreciation system (GDS) and an alternative depreciation system (ADS). You generally use the GDS process in most cases, while using ADS for specific types of business property.

MACRS allows three depreciation methods: a straight-line method with equal deductions for each year of the recovery period, and two accelerated depreciation methods to allow property to be depreciated faster.

Part IV totals Parts I, II, and III.

Part V: Listed Property

This section is for listed property. You’ll need information about the type of property, date placed in service, business investment use, basis, recovery period, depreciation method, and Section 179 cost. You must also include information on your total miles driven for each vehicle, separating out total business or investment miles driven, total commuting, and personal miles driven.

Listed property is property that can be used for both business and personal purposes. Passenger vehicles are the most common kind, but other kinds of transportation vehicles are also included. Only business use of a vehicle is deductible—not personal use or commuting. To take depreciation deductions on listed property, you must be able to show that the vehicle is used more than 50% of the time for business purposes.

Part VI: Amortization

This section is for amortization. You must list the description of costs, date amortization begins, amortization costs, amortization period or percentage, and amortization deduction for the year.

If the number of assets in a category is greater than the lines on Form 4562, you can include a statement or spreadsheet showing each item of property and the required information.

Depreciation and amortization are special types of business expenses that must be deducted over several years instead of a one-time deduction. These expenses apply to major property that a business owns and uses over several years.

Depreciation is the process used for tangible assets with physical form, such as vehicles, equipment, furniture, and buildings. Amortization, meanwhile, is used for intangible assets (those without physical form) such as patents, trademarks, trade secrets, and certain types of software.

The calculation is the same for both depreciation and amortization, as shown below:

1. Find the value of the property—its adjusted basis.
2. Find the number of years of its useful life.
3. For depreciated property, the life of the asset differs depending on the type of the asset. For amortized property, this is usually 15 years.
4. Divide the basis by the number of years of useful life to get the amount of depreciation or amortization for each year. This process is called “straight-line depreciation,” dividing the total into equal amounts for each year.

How To File Form 4562

Most small businesses report their income taxes on Schedule C as part of their personal tax returns on Form 1040. To report depreciation and amortization for your business, you’ll need to file Form 4562 along with this form and include information from Form 4562 on Schedule C, the tax form for sole proprietors and self-employed business owners.

Partners in partnerships and members (owners) of multiple-member limited liability companies receive a Schedule K-1, showing their share of income, credits, and deductions including depreciation and amortization. They must carry over information from this form on depreciation, amortization, listed property, and special deductions to their personal tax return (Form 1040).

Frequently Asked Questions (FAQs)