rom 4562

Department of the Treasury
Internal Revenue Service

Depreciation

> See instructions.

> Attach this form to your return.

1974

Name(s) as shown on return

| Identifying number

Use this form as an attachment to an individual, partnership, fiduciary, or corporation return. Include totals from line
5, below, on the corresponding lines of the regular depreciation schedule.
Check box if you made an election this taxable year to use [] Class Life (ADR) System and/or [~] Guideline Class Life System.

a. Group and guideline class or
description of property

b. Date acquired

d. Depreciation
allowed or allowable
1m prior years

c. Cost or
other basis

e. Method -

of f. Life or &. Depreciation for
computing rate this year
depreciation

1 Total additional first-year depreciation (do not include in items bel

2 Depreciation from Form 4832 .

3 Depreciation from Form 5006 .

4 Other depreciation:
Buildings

Furniture and fixtures.

Transportation equipment .

Machinery and other equipment .

Other (Specify)

5 Totals

: .

a

Include these totals on the corresponding lines of your regular depreciation schedule. (For example: If depreciation applies
to Schedule F (Form 1040), include the totals on Schedule F, line 59.)

Instructions

Note: Instructions for Class Life (ADR)
System and Guideline Class Life System
are contained in separate instructions for
Form 4832 (Class Life (ADR) System) and
on Form 5006 (Guideline Class Life Sys-
tem). Also see Publication 534, Tax In-
formation on Depreciation.

Reasonable Allowance.—You may de-
duct a reasonable allowance for the ex-
haustion, wear and tear, and obsolescence
of property used in a trade or business,
or held for the production of income. The
allowance is not allowed for stock in
trade, inventories, land, and personal
assets.

Charge off the cost (or other basis) to
be recovered over the expected useful life

of the property. Depreciation begins when
the asset is placed in service and ends
when itis retired from service.

In computing the depreciation basis
for personal property other than live-
stock, you need not take into account sal-
vage value that does not exceed 10 per-
cent of the property cost or other basis.
If the salvage value exceeds 10 percent,
take only the excess into account. These
provisions apply to property with a use-
ful life of three or more years.

Depreciation Methods.—The various
methods of depreciation you may use
under section 167(b) aré:

Straight Line Method.—Determine the
depreciation for each year by dividing the

cost or other basis of the property by
its remaining useful life. Adjust the cost
or other basis by depreciation allowed or
allowable in prior years and applicable
salvage value.

Declining Balance Method.—Apply a
uniform rate each year to the remaining
cost or other basis of property, deter-
mined at the beginning of the year. Do
not adjust for salvage value, but stop de-
preciation when the unrecovered cost is
reduced to salvage value. The deprecia-
tion rate for used property under this
method may not exceed 114 times the
applicable straight line rate. Note: See
“Limitation on Accelerated Depreciation
for Used Section 1250 (Real) Property.”

(Continued on back)

Form 4562 (1974)


Special Rules for New Assets.—You
may depreciate the cost or other basis
of a new asset under any of the following
methods, provided (a) the asset is tangi-
ble, (b) it has an estimated useful life to
you of three or more years, and (c) its
original use commenced with you. Note:
See “Limitation on Accelerated Deprecia-
tion for New Section 1250 (Real)
Property.”

(1) Declining balance _method.—Use
this method with a rate not in excess of
twice the applicable straight line rate.

(2) Sum of the years-digits method.—
Compute the deduction for each year by
multiplying the property's cost or other
basis (reduced by estimated salvage
value) by the number of years of useful
life remaining (including this year), and
dividing the product by the sum of all the
digits corresponding to the years of esti-
mated useful life of the asset. For a 5-year
life, this sum would be 15 (5 + 4 + 3 +
2 + 1). For the first year five-fifteenths of
the cost reduced by estimated salvage
value would be allowable; for the second
year, four-fifteenths, etc.

(3) Other methods.—You may use
any consistent method which does not
result at the end of any year in accu-
mulated allowances greater than the total
of the accumulated allowances which
would have resulted from use of the 200
percent declining balance method. This
limitation applies only during the first
two-thirds of the property's useful life.

Change in Method.—If you wish to
change your depreciation computation
method, the tax treatment of salvage re-
coveries on sale, exchange, or other dis-
position of business property, or the tax
treatment of additions or retirements
from multiple asset accounts, file Form
3115 with the Service Center where you
will file your return. You must file within
the first 180 days of the taxable year to
which the change relates.

Additional First-Year Depreciation.—
In the year assets are first subject to de-
preciation, you may elect to write off
20 percent of their cost (before adjust-
ment for salvage value) if they are tangi-
ble personal property (equipment, ma-
chinery, etc.) acquired by purchase for
use in ‘a trade or business or held for
the production of income. If the total
cost of these assets exceeds $10,000
($20,000 for joint return), the additional
depreciation is limited to $2,000 ($4,000
for joint return).

The additional depreciation is limited
to property with a remaining useful life
of six or more years which was not
acquired from a person (other than a
brother or sister) whose relationship to
you would result in the disallowance of
losses. You may also take normal de-
preciation on the cost of the asset re-
duced by the first-year depreciation.

Enter the total additional first-year de-
preciation for the year on the line pro-
vided in the depreciation schedule. Do
not include it on the line used to show
the regular depreciation of an asset.

Limitation on Accelerated Depreciation
for New Section 1250 (Real) Property
You may not use the double declining

balance and sum-of the-years-digits meth-
ods except for new residential rental
property from which at least 80 percent
of the gross rental income is derived from
rental of residential units. Other new real
property may be depreciated under the
straight line or 150 percent declining bal-
ance method.

Limitation on Accelerated Depreciation
for Used Section 1250 (Real) Property.—
You may depreciate used residential rent-
al property with a useful life of 20 years or
more under the 125 percent declining bal-
ance method. Other used real property
must be depreciated under the straight
line method.

Rehabilitation Expenditures for Low-In-
come Rental Housing—You may elect
to compute the depreciation deduction
under section 167(k) for rehabilitation
expenditures incurred for low-income
rental housing under the straight line
method using a useful life of 60 months
and no salvage value, instead of any
other depreciation computation method.
If this election is for property held by a
partnership, the partnership must make
the election. (The term “low-income rent-
al housing” means any building whose
dwelling units are for rental occupancy
by low or moderate income families and
individuals, as determined by the Secre-
tary or his delegate, consistent with poli-
cies of the Housing and Urban Develop-
ment Act of 1968.)

Limitations.—The expenditures: (1)
must not exceed $15,000 per dwelling
unit in the building, and (2) must exceed
$3,000 per unit over two consecutive tax-
abie years. This rapid writeoff does not
apply to motels, hotels, or other estab-
lishments in which more than half the
units are rented on a transient basis.

Time and Manner of Making Election.—
To make an election under section 167
(k), attach a statement to the income tax
return filed for the first taxable year in
which you compute the depreciation de-
duction using a 60-month useful life. In
general, you must file this election no
later than the time prescribed by law (in-
cluding extensions) for filing for the tax-
able year in which the property is placed
in service (see I:T. Regs. § 1.167(k)—4).

Attach an information statement to
the income tax return for each subse-
quent taxable year in which you compute
depreciation under section 167(k).

Information Required for Election
Year.—

(1) Your name, address, and identifica-
tion number.

(2) Description of property for which
an election is made, and the date the
property was placed in service.

(3) Location and description of build-
ing being rehabilitated.

(4) Number of dwelling units in the
structure, and number used on a tran-
sient basis (see I.T. Regs. § 1.167(k)-3
(c)(2)).

(5) Date rehabilitation expenditures
are incurred (see I.T. Regs. § 1.167(k)—
1(a)(2)).

(6) Statement that all income certifi-
cations required by I.T. Regs. § 1.167(k)—
3(b)(4) have been obtained.

(7) For each dwelling unit which you
seek to qualify as low-income housing for
election purposes under section 167(k):

(a) Rehabilitation expenditures _allo-
cated to that unit (see I.T. Regs.
§ 1.167(k)-2(d)),

(b) For each period of occupancy dur-
ing the taxable year, the number
of occupants, the maximum in-
come level permissible under |.T.
Regs. § 1.167(k)-3(b)(2) for
them, their adjusted income (de.
termined solely from the income
certifications required by I.T. Regs.
§ 1.167(k)—3(b)(4)), and the rent
Charged for that unit, and

(c) For each period in which the unit
is vacant during the taxable year,
a description of each as to number
of rooms, the low or moderate in-
come level in that area for the
number of persons occupying com-
parable units, and the rental at
which each vacant unit is offered.

(8) If allocation is required under I.T.
Regs. § 1.167(k)-2(d), the area occupied
by dwelling units and nondwelling units.

(9) \f applicable, a statement of intent
to fulfill the $3,000 minimum amount
limitation (see I.T. Regs. § 1.167(k)—4
(a)(2)).

(10) If you are treated as having paid
or incurred expenditures by reason of
LT. Regs § 1.167(k)—1(b), the amount of
those expenditures, the date they were
incurred, the date the property attributa-
ble to the expenditures was placed in
service, the accounting method used by
the person who made the expenditures,
and the purchase price of the property
attributable to them.

Information Required for Subsequent
Years.—For each taxable year in which
you compute depreciation under section
167(k) after the taxable year of the elec-
tion, the statement required by this sec-
tion’ must state the rental charge for each
occupied unit and at which each vacant
unit is offered. In addition, if any such
unit is rented to a new tenant during the
taxable year, the statement must contain
the following information:

(1) A statement that the tenant has
signed an income certification (see 1.T.
Regs. § 1.167(k)—3(b)(4)),

(2) The number of occupants in the
unit, the maximum income level permis-
sible under I.T. Regs. § 1.167(k)-3(b)(2)
for that number of occupants, and the
total adjusted income of the occupants,
determined solely from the income certifi-
cations required by 1.T. Regs. § 1.167
(k)-3(b)(4).

Definitions.—See section 167(k) and
1.T. Regs. § 1.167(k)—3 for definitions of
rehabilitation expenditures, low-income
rental housing, dwelling unit, low or mod-
erate income, and adiusted income.

#U,S.Government Printing Office: 1974 — 548-145 53010-7663