wom 4562

Department of the Treasury
Internal Revenue Service

Depreciation

> See instructions.
> Attach this form to your return.

171

Name(s) as shown on return

| Identifying number

This is an optional form to be used as an attachment to
an individual, partnership, fiduciary, or corporation return.
The totals on line 4 below must be included on the corre-
sponding lines of the regular depreciation schedule. Taxpayers
must also complete the Summary of Depreciation provided on
the applicable form or schedule.

Note: For new depreciation rules, see Form 4832 (Revised).
Form 4832 (Revised) also explains the effect the new rules

have on guideline lives under Rev. Procs. 62-21 and 65-13.
Taxpayers using these lives: Make no entry in column b, enter
amounts in column c for assets held at end of year, and enter
accumulated depreciation at end of year in column d. You
may (1) group depreciable assets in accordance with the cate-
gories shown below, or (2) continue to list your assets in the
same manner as in prior years.

a, Group and guideline class or
description of property

b. Date acquired

d. Depreciation
allowed or allowable
in prior years

| c. Cost oF
i other basis,
}

e. Method
of | f.Lifeor |g. Depreciation for

computing | rate this year

depreciation

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

) ————_ |
"| ZZ ZT,

2 ADR depreciation from Form 4832
3 Other depreciation: |
Buildings

Furniture and fixtures .

Transportation equipment .

Machinery and other equipment |__
Other (specify)

4 Totals

These totals should also be included 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 56.)

Instructions

Note: A new system for determining
depreciation is effective for certain classes
of assets placed in service after Decem-
ber 31, 1970. This system is “Class Life
Asset Depreciation Range.” Taxpayers
who want to use this depreciation system
should use Form 4832 (Revised), for
making the election and determining the
reasonable allowance for 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 of property held for the production of
income. The allowance is not allowed for

stock in trade, inventories, land and per-
sonal 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 the asset is retired from service.

In computing the basis on which de-
preciation may be taken for personal
property other than livestock, you need
not take into account salvage value that
does not exceed 10 percent of the cost
or other basis of the property. If the
salvage value exceeds 10 percent, take
only the excess into account. These pro-
visions apply to property acquired after
October 16, 1962, and having a useful
life of three years or more.

Alternative Depreciation Guidelines and
Rules.—Taxpayers using lives previously
justified under Rev. Procs. 62-21 and
65-13 may continue to use these lives
for assets placed in service before Jan-
uary 1, 1971. (Note: See Form 4832 (Re-
vised) for information regarding optional
method available for depreciation of cer-
tain classes of assets placed in service
after December 31, 1970.)

Depreciation Methods.—The various
methods of depreciation which may be
used under section 167(b) are:

Straight Line Method.—The deprecia-
tion for each year is determined by divid-
ing the cost or other basis of the prop-
erty, by the remaining useful life of the

(Continued on back)


property. The cost or other basis must
be adjusted by depreciation allowed or
allowable in prior years and salvage value
if applicable.

Declining Balance Method.—Apply a
uniform rate each year to the remain-
ing cost or other basis of property deter-
mined at the beginning of the year,
without adjustment for salvage value.
However, depreciation must stop when
the unrecovered cost is reduced to sal-
vage value. The rate of depreciation for
used property under this method may
not exceed 114 times the applicable
straight line rate. Note: See “Limitation
on Accelerated Depreciation for Used Sec-
tion 1250 (Real) Property.”

Special Rules for New Assets.—You
may also depreciate the cost or other
basis of a new asset under any of the
following methods, provided that (a) the
asset is tangible, (b) it has an estimated
useful life of three years or more to the
taxpayer, and (c) the original use of the
asset commenced with the taxpayer.
Note: See “Limitation on Accelerated De-
preciation 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 cost or other basis of
the property (reduced by estimated sal-
vage value) by the number of years of
useful life remaining (including this year),
and dividing the product by the sum of al!
the digits corresponding to the years of
the estimated useful life of the asset. In
the case of a 5-year life, this sum would
be 15 (5+ 4+43 +42 + 1). Forthe first
year five-fifteenths of the cost reduced by
estimated salvage value would be allow-
able; 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 the 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 method of computing depre-
ciation, the tax treatment of salvage
recoveries on sale, exchange, or other
disposition of business property, or the
tax treatment of additions or retirements
from multiple asset accounts, you may
file Form 3115 with the District Director's
office. You must file within the first 180
days of the taxable year to which the
change relates.

Additional First-Year Depreciation.—
You may elect to write off in the year
assets are first subject to depreciation,
20 percent of the cost of the assets (be-
fore adjustment for salvage value) if they
are tangible personal property (e.g.,
equipment, machinery, etc.) acquired by
purchase for use in a trade or business
or to be held for the production of income.
If the aggregate cost of these assets ex-
ceeds $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 years or more and which was not
acquired from a person (other than a
brother or sister) whose relationship to
the taxpayer would result in the disallow-
ance of losses. Normal depreciation may
also be taken on the cost of the asset,
reduced by the first-year depreciation.

The total additional first-year depreci-
ation for the year should be entered on
the line provided in the depreciation
schedule. Do not include on the line used
to show the regular depreciation of an
asset.

Limitation on Accelerated Depreciation
for New Section 1250 (Real) Property.—
The double declining balance and sum of
the years-digits methods may not be used
except for (1) new residential rental prop-
erty (from which at least 80% of the
gross rental income is derived from rental
of residential units), (2) other new real
property acquired before July 25, 1969,
and (3) new real property placed in serv-
ice after July 24, 1969, if construction,
acquisition, or permanent financing ar-
rangements were entered into before July
25, 1969. Other new real property ac-
quired after July 24, 1969, may be de-
preciated under the straight line or 150%
declining balance methods.

Limitation on Accelerated Depreciation
for Used Section 1250 (Real) Property.—
Used residential rental property acquired
after July 24, 1969, with a useful life of 20
years or more may be depreciated under
the 125% declining balance method. In
the case of used real property acquired
before July 25, 1969, or used real prop-
erty acquired after July 24, 1969, pursu-
ant to a written contract entered into be-
fore July 25, 1969, for the acquisition of
such property or for the permanent fi-
nancing thereof, depreciation is limited to
the 150% declining balance method.
Other used real property acquired after
July 24, 1969, may be depreciated under
the straight line method.

Rehabilitation Expenditures for Low-In-
come Rental Housing.—A taxpayer may
elect to compute the depreciation deduc-
tion under section 167(k) for rehabilita-
tion expenditures incurred for low-income
rental housing under the straight line
method using a useful life of 60 months
and no salvage value in lieu of any other
method of computing depreciation. If this
election is for property held by a partner-
ship, the partnership must make the
election. (The term “low-income rental
housing” means any building the dwelling
units in which are held for occupancy on
a rental basis by families and individuals
of low or moderate income, as determined
by the Secretary or his delegate in a man-
ner consistent with the policies of the
Housing and Urban Development 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 a period of two con-
secutive taxable years. This rapid write-
off does not apply to motels, hotels, or
other establishments where more than
one-half of the units are rented on a tran-
sient basis.

Time and Manner of Making Election.—
An election under section 167(k) shall be
made by attaching a statement to the in-
come tax return filed for the first taxable
year in which the taxpayer computes the
depreciation deduction using a 60-month
useful life. In general, this election must
be filed no later than the time prescribed
by law (including extensions thereof) for
filing the taxpayer's return for the taxable
year in which the property is placed in
service (see I.T. Regs. § 1.167(k)—4).

An information statement shall be at-
tached to the income tax return for each
subsequent taxable year in which the tax-
payer computes depreciation under sec-
tion 167(k).

Information Required

for Election

‘ear.—
(1) Taxpayer's name, address, and
‘Ye US, GOVERNMENT PRINTING OFFICE: 197!~O-418-165

identification number.

(2) Description of property with re-
spect to which an election is made, and
the date such property was placed in
service.

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

(4) Number of dwelling units in the
structure, and the number of such units
used on a transient 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(ay(2)). . .

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

(7) For each dwelling unit which the
taxpayer seeks to qualify as low-income
housing for purposes of the election
under section 167(k):

(a) Rehabilitation expenditures allo-
cated to such unit (see 1.T. Regs.
§ 1.167(k)—2(d)),

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 that
number of occupants, the adjusted
income of the occupants of such
unit (determined solely from the
income certifications required by
LT. Regs. § 1.167(k)—3(b)(4)), and
the vent charged for such unit,
and

For each period in which such unit
is vacant during the taxable year, a
description of each such unit (as to
number of rooms), the low or mod-
erate income level in that area for
the number of persons occupying
comparable 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) If applicable, statement of intent
to fulfill $3,000 minimum amount limita-
tion (see I.T. Regs. § 1.167(k)—4(a)(2)).

(10) If the taxpayer is treated as hav-
ing paid or incurred expenditures by rea-
son of I.T. Regs. § 1.167(k)-1(b), the
amount of such expenditures, the date
the expenditures were incurred, the date
the property attributable to the expendi-
tures was placed in service, the method
of accounting used by the person that
made the expenditures, and the purchase
price for the property attributable to the
expenditures.

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

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

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

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

E.1, 25-1118272

(b)

(c