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What is Form 4562?

IRS Form 4562 was created to enable filers to claim a deduction for depreciation, and amortization. It further enables filers to make the depreciation election under section 179 to expense property, and will allow a means to provide the necessary details for the use of the depreciated or amortized property.

Depreciation refers to the annual deduction which allows tax filers to deduct, or recover, the cost basis of an item used to conduct your business over its usable life. This is often describing as the process of writing off the cost of an asset over multiple tax years. A common example of this, is the purchase and subsequent depreciation of a vehicle, or perhaps office equipment such as a computer.

In short, if you wish to claim depreciation or amortization, you’ll need fill out Form 4562 to communicate the necessary details to the IRS. And this will have to submitted every year you wish to deduct a depreciable asset on your tax return.

Join us as we discuss the changes to this form, and review instructions on how to complete it.

2021 Changes to Form 4562

While there were several changes to Form 4562 for the 2021 tax year, the most noteworthy change with wider applicability is with regard to limits. Beginning in 2021:

  • The maximum expense deduction for section 179 is $1,050,000 – which is reduced by the amount by which the cost of (section 179) property placed in service during the tax year exceeds $2,620,000.
  • Also changed is the maximum section 179 expense deduction for sport utility vehicles (SUVs) placed in service in tax years beginning in 2021 is now $26,200.

The other changes to Form 4562 are specific to race horses and Indian reservation property which we will not discuss in this article.

Depreciable Property

The following property items are depreciable items:

  • Cellular phones
  • Air conditioners
  • Heating units
  • Property used for manufacturing, extraction, transportation, communication, or disposal
  • Computer equipment

View our article titled What Property Can Be Depreciated? for specifics on what can and cannot be depreciated.

Form 4562 Example

Here’s what Form 4562 looks like – please refer to this as we walk through the various parts of the form:

Form 4562 Example - Page 1
Form 4562 Example - Page 2

Form 4562 Instructions

Much of Form 4562 warrants little explanation, however, we’ll review the more complex sections here. This should be considered as a condensed and supplemental version of the IRS instructions. For the complete set of instructions please visit IRS instructions for Form 4562.

Part 1 of 6: Expense Certain Property under Section 179

If you elect to expense property under Section 179 then you are opting to deduct the entire cost of the capital asset in year one rather than spreading the depreciation over its useful life. Please note that estates or trusts are not eligible to make this election.

Without exception, the asset you elect for Section 179 MUST have been put into service during the year in which you are filing for.

Line 1. For the 2021 tax year the maximum you can deduct in one year is $1,050,000. This limit is reduced if the asset costs over $2,620,000, which is another change for 2021.

Lines 4 and 5. This is where the limit reduction is applied to Line 1, if the property is worth over $2.5 million.

Line 6. Here you must list the assets which you wish to depreciate. If you use the asset strictly for business purposes, then list the entire price here. If you elect to depreciate less than the entire value of the asset, list the amount you wish to depreciate under the Elected Cost column.

Line 7. Note that Listed Property is is any depreciable asset which is utilized for both business purposes, and personal purposes. Vehicles often fall into this category.

Line 10. If you depreciated a portion of an asset last year, and the rest of its value is carrying over and depreciating this year, enter that amount here.

Line 11. This is the maximum amount you’re able to write off this year. It’s the smaller number of your net earnings for the year or the amount on Line 1.

Line 13. This represents the depreciation you must carry into the next tax year next year, given it exceeds the limit on Line 11.

Part 2 of 6: Special Depreciation

We’ll skip over most of this since Part 2 applies to less common property such as farms and environmental friendly equipment for your business.

Part 3 of 6: MACRS Depreciation

This section is applicable for those who wish to depreciate property over multiple years (from 3 to 25 years) versus utilizing Section 179. The usable life is determined using the Modified Accelerated Cost Recovery System (MACRS) guidance provided by the IRS.

Line 18. If you have similar assets you wish to depreciate, they may be grouped for ease. For instance, you may wish to group several pieces of related machinery together on one line item for ease. This is also where you’ll attached a separate sheet showing the depreciable basis calculations which factor in salvage value of the asset among other things.

Part 4 of 6: Summary

Complete sections 5 and 6 and then come back to the summary section, or you’ll run a strong probability of needing to revise the summary later.

Part 5 of 6: Listed Property

Line 7. Note that Listed Property is is any depreciable asset which is utilized for both business purposes, and personal purposes. Vehicles often fall into this category.

Line 25: For any property which is listed and qualified, you may claim an additional deduction.

Line 26: Assets you use more frequently for business than for personal use should be listed here.

Line 27: Assets are used more frequently for personal use than business use must be listed here.

Lines 30-37: This is where you must list vehicle mileage and more for your business vehicles. It’s time consuming to complete but self evident.

Section C (Lines 37-41): This short questionnaire determines if Section B must be completed.

Part 6 of 6: Amortization

If you’re amortizing assets, they must be listed here. Given the variability in the value of the amortized items, it’s recommended you seek the advice of a CPA.

Download Form 4562

Download the official IRS Form 4562.

Expert Help

When it’s time to file Form 4562, consider enlisting the help of a CPA as depreciation can be complex, and this is merely an introduction. An experienced CPA will be able to guide you through the process, avoiding costly mistakes along the way, as well as helping you to select the appropriate depreciation method for your situation – straight line depreciation, double declining depreciation, unit of production depreciation, or another.