rom 4562

Department of the Treasury
Internal Revenue Service

Depreciation

> See Instructions on back.
> Ifyou use this form, attach it to your return.

1969

Name 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 2 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.

The form is designed for taxpayers using the alternative
guidelines and administrative procedures described In Revenue
Procedures 62-21 and 65-13 as well as for those taxpayers

who wish to continue using practices authorized prior to these
revenue procedures. Taxpayers using Revenue Procedures 62—
21 and 65-13: Make no entry in column 2, enter the cost or
other basis of assets held at end of year in column 3, and
enter the accumulated depreciation at end of year in column 4.

Note: Taxpayers may (1) group depreciable assets in accord-
ance with the categories specified below or (2) continue to list
assets in the same manner as in prior years.

5. Method
of

4, Depreciation
. Ndeline class . Cost 6. Life .
4. Group and guldeting cess 2, Date acquired &, ont or atciad er slole | const | © it or | 7, Depracation fer
1 Total additional first-year depreciation (do not include in items below) >

Buildings 2. 6 ee eee
Furniture and fixtures . . - «+

Transportation equipment . . «
Machinery and other equipment .

Other (specify)

Po a OO |

These totals should also be included on the corresponding lines of
depreciation applies to Schedule F (Form 1040), include the totals on Sch

ur regular depreciation schedule. (For example: If
jule F, Part Ill, line 54.)



Depreciation

A reasonable allowance for the ex-
haustion, wear and tear, and obsoles-
cence of property used in the trade or
business, or of property held by the
taxpayer for the production of income
shall be allowed as a depreciation de-
duction. The allowance does not apply
to inventories or stock-in-trade, nor to
land, apart from the improvements or
physical development added to it.

The cost (or other basis) to be recov-
ered should be charged off over the
expected useful life of the property.
Similar assets may be grouped
together as one item for reporting
purposes.

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, only
the excess need be taken into account.
These provisions apply to property ac-
quired after October 16, 1962, and
having a useful life of three years or
more.

Alternative Depreciation Guidelines and
Rules.—Revenue Procedure 62-21,
dated July 12, 1962 (supplemented by
Revenue Procedures 65-13 and 68—
27), gives alternative standards and
procedures for determining deprecia-
tion. The guideline lives for guideline
classes (broad categories, not item-by-
item) are, in most cases, substantially
shorter than those used prior to Reve-
nue Procedure 62~21. These guideline
lives and rules apply to all depreciable
property, including existing assets as
well as new acquisitions. However,
they do not supersede existing rules
and procedures for any taxpayer who
wishes to continue to use them. Tax-
payers who wish to use these provi-
sions must use them for all assets in
a particular guideline class.

Depreciation Methods.—Following is a
brief description of the various methods
of depreciation which may be used

Instructions

under either Revenue Procedure 62-21
or previously prescribed rules and
standards.

Straight Line Method.—To compute the
deduction, determine the cost or other
basis of the property and deduct the
total depreciation allowed or allowable
in prior years. Divide the result by the
number of years of useful life remain-
ing to the asset. The answer is the de-
preciation deduction.

Declining Balance Method.—A uniform
rate is applied each year to the remain-
ing cost or other basis of property
determined at the beginning of the
year, without adjustment for salvage
value. However, depreciation must stop
when the unrecovered cost is reduced
to salvage value. The rate of deprecia-
tion for used property under this
method may not exceed 114 times the
applicable straight line rate.

Special Rules for New Assets.—The
cost or other basis of a new asset may
also be depreciated under any of the
following methods, provided that (a)
the asset is tangible, (b) it has an esti-
mated useful life of three years or more
to the taxpayer, and (c) the original use
of the asset commenced with the tax-
payer.

(1) Declining balance method.—
This method may be used with a rate
not in excess of twice the applicable
straight line rate.

(2) Sum of the years-digits meth-
od.—The deduction for each year is
computed by multiplying the cost or
other basis of the property (reduced by
estimated salvage value) by the num-
ber of years of useful life remaining
(including the year for which the deduc-
tion is computed), and dividing the
product by the sum of all the digits
corresponding to the years of the esti-
mated useful life of the asset. In the
case of a 5-year life, this sum would be
15 (6+4+4+3+42+1). For the first
year five-fifteenths of the cost reduced
by estimated salvage value would be
allowable; for the second year, four-
tifteenths, etc.

(3) Other methods.—A taxpayer
may use any consistent method which
does not result at the end of any year in
accumulated 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 prop-
erty’s useful life.

Change in Method.—lf you wish to
change your method of computing de-
preciation, the tax treatment of salvage
recoveries on sale, exchange, or other
disposition of business property, or the
tax treatment of additions or retire-
ments from multiple asset accounts,
you should file Form 3115 with the
District Director's office. You must file
within the first 90 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
(before adjustment for salvage value)
if they are tangible personal property
(e.g., equipment, machinery, etc.) ac-
quired by purchase for use in a trade
or business or to be held for the pro-
duction of income. If the aggregate
cost of these assets exceeds $10,000
($20,000 for joint return), the addi-
tional 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 di:
allowance of losses. Normal deprecia-
tion may also be taken on the cost of
the asset, reduced by the first-year
depreciation.

The total additional first-year depre-
ciation for the year should be entered
on the line provided in the depreciation
schedule. It is not to be included on the
line used to show the regular deprecia-
tion of an asset.

detest US, GOVERNMENT PRINTING OFFICE 196—O-359-702 1, 25-1118272