om 4562

Department of the Treasury
Internal Revenue Service

Depreciation

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

1977

Name(s) as shown on return

Identifying number

Use this form as an attachment to an individual, partnership, fiduciary, or corporation return.

‘a. Description of property b. Date acquired Se ge allgved’ or altowable fife or Depreciation for
im prior years | deprecation | “= *
1 Total additional first-year depreciation (do not include in items below)
2 Depreciation from Form 4832... . . WWM mM

3 Other depreciatiot
Buildings . . 2 ee

Furniture and fixtures . .

Transportation equipment . .

Machinery and other equipment .

Other (Specify),

4Totas . 2... ee ee ee
Indi

idual, partnership, and fiduciary filers should include totals from line 4 on the corresponding

es of their regular

depreciation schedule. Form 1120 or any of the Form 1120 series (Form 1120S, 1120F, etc.) filers should attach Form 4562
to their return and enter total of line 4, column g, on appropriate depreciation expense line in ‘‘Deductions” section of return.

Instructions

(Section references are to the Internal Rev-
enue Code unless otherwise specified.)

Note: Instructions for Class Life Asset
Depreciation Range (CLADR) System are
contained in separate instructions for Form
4832 (Class Life Asset Depreciation Range
(CLADR) System). Also see Publication
534, Tax Information 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 al-
lowance 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 it is retired from service.

In computing the depreciation basis for
personal property other than livestock, you
need not take into account salvage value

that does not exceed 10 percent 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 useful life of three or
more years.

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

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

(Continued on back)

235-157-1

Form 4562 (1977)


cost or other basis of the property by its
remaining useful life. Adjust the cost or
other basis by depreciation allowed or al-
lowable in prior years and applicable sal-
vage value.

Declining Balance Method.—Apply a uni-
form rate each year to the remaining cost
or other basis of property, determined at
the beginning of the year. Do not adjust for
salvage value, but stop depreciation when
the unrecovered cost is reduced to salvage
value. The depreciation rate for used prop-
erty under this method may not exceed 114
times the applicable straight line rate. Note:
See “Limitation on Accelerated Deprecia-
tion for Used Section 1250 (Real) Prop-
erty.”

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 tangible, (b) it has
an estimated useful life to you of three or
more years, and (c) its original use com-
menced with you. Note: See “Limitation on
Accelerated Depreciation 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 re-
maining (including this year), and dividing
the product by the sum of all the digits cor-
responding to the years of estimated useful
life of the asset. For a 5-year life, this sum
would be 15 (54+4+3-+2+ 1). For the 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 accumulated al-
lowances greater than the total of the accu-
mulated allowances which would have re-
sulted from use of the 200 percent declin-
ing balance method. This limitation applies
only during the first two-thirds of the prop-
erty’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 deprecia-
tion, you may elect to write off 20 percent
of their cost (before adjustment for salvage
value) if they are tangible personal property
(equipment, machinery, 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 cost of partnership property on
which additional first-year depreciation is
calculated and passed through to the part-
ners can not exceed $10,000. For example,
if the total cost of assets on which addi-
tional first-year depreciation can be cal-
culated is $40,000, only $10,000 of the
cost can be passed through to the partners.
If the partners have assets of their own on

which first-year depreciation can be calcu-
lated, they may add the cost of their assets
to their share of partnership assets cost in
calculating the allowable deduction.

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 depreciation on the cost of the
asset reduced by the first-year depreciation.

Enter the total additional first-year de-
preciation for the year on the line provided
in the depreciation schedule. Do not in-
clude 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 bal-
ance and sum of the years-digits methods
except for new residential rental property
from which at least 80 percent of the gross
rental income is derived from rental of resi-
dential units. Other new real property may
be depreciated under the straight line or
150 percent declining balance method.

Limitation on Accelerated Depreciation
for Used Section 1250 (Real) Property.—
You may depreciate used residential rental
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 expendi-
tures made pursuant to a binding con-
tract entered into after December 31,
1975, and before January 1, 1978, 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
rental housing” means any building whose
dwelling units are for rental occupancy by
low or moderate income families and in-
dividuals, as determined by the Secretary or
his delegate, consistent with the Leased
Housing Program under section 8 of the
United States Housing Act of 1937, as
amended.)

Limitations.—The expenditures: (1)
must not exceed $20,000 per dwelling unit
in the building, and (2) must exceed $3,000
per unit over two consecutive taxable years.
This rapid writeoff does not apply to motels,
hotels, or other establishments 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 deduction using
a 60-month useful life. In general, you must
file this election no later than the time pre-
scribed by law (including extensions) for
filing for the taxable year in which the prop-
erty is placed in service (see I.T. Regs.
§ 1.167(k)-4).

Attach an information statement to the
income tax return for each subsequent tax-
able year in which you compute deprecia-
tion under section 167(k).

Information Required for Election

fear.—
‘fy US, GOVERNMENT PRINTING OFFICE : 1977-0-235-157

(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 building
being rehabilitated.

(4) Number of dwelling units in the
structure, and number 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
(a)(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 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 during
the taxable year, the number of oc-
cupants, the maximum income level
permissible under I.T. Regs. § 1.167
(k)-3(b)(2) for them, their adjusted
income (determined solely from the
incoie 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 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 1.T.
Regs. § 1.167(k)-2(d), the area occupied
by dwelling units and nondwelling units.

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

(10) If you are treated as having paid or
incurred expenditures by reason of 1.T.
Regs. § 1.167(k)—-1(b), the amount of
those expenditures, the date they were in-
curred, the date the property attributable
to the expenditures was placed in service,
the accounting method used by the person
who made the expenditures, and the pur-
chase 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 election, the
statement required by this section must
state the rental charge for each occupied
unit and at which each vacant unit is of-
fered. In addition, if any such unit is rented
to a new tenant during the taxable year, the
statement must contain the following in-
formation:

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

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

Definitions.—See section 167(k) and |.T.
Regs. § 1.167(k)—3 for definitions of reha-
bilitation expenditures, low-income rental
housing, dwelling unit, low or moderate in-
come, and adjusted income.

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