Vehicles, computers, computer peripherals, photographic equipment, audio, and video equipment, and other types of property that are often used for both personal and business purposes (known as "listed property") are special recordkeeping requirements and restrictions on depreciation and expensing.
The "listed property" rules were enacted to keep people from claiming tax deductions for the personal use of property under the guise that it was used in a trade or business. The term derives from the fact that certain categories of high-abuse property are specifically "listed" in the Code section that provides the restrictions.
Listed property includes:
- cars and other vehicles (except for those that are over 14,000 pounds or that are unlikely to be used for personal purposes because of their design, such as construction vehicles, moving vans, etc.)
- equipment that's normally used for entertainment or recreation, such as photographic, audio, communication, and video recording equipment; and
- computers and peripherals unless they are
- used only at a regular business establishment, including an office that qualifies for the home office deduction, and
- are owned or leased by the business operator.
Your business usage of listed property be more than 50 percent in order for you:
- to claim an expensing election for the property;
- to claim "bonus" depreciation for the property, or
- to depreciate the property under the Modified Accelerated Cost Recovery System (MACRS) depreciation system.
If you use the property less than 50 percent for business, you can still claim depreciation based on your business use percentage, but you must use straight line depreciation under the Alternative Depreciation System (ADS) method, using the appropriate ADS class lives for the items.
Recapture may be required.
If your business use of listed property drops below 50 percent in any year after the first year you use the property in your business, you may have to pay back some of the excess depreciation you claimed.
Specifically, you'll have to treat the difference between the ADS and the depreciation you actually claimed (including any amount you expensed in the first year) as ordinary income in the first year you no longer use the asset more than 50 percent for business.
In order to claim any deductions for listed property, it is essential to keep accurate and adequate records. It is essential that you keep records showing that your business usage was at over 50 percent of the total usage of the property. This means that you should keep a log showing each time the property was used, for how long, and for what purpose.
For cars, your mileage records will generally suffice. For computers, cameras, audio/video equipment etc., you should keep a log noting the date, length of time, and purpose for each use of the item. Personal or family use can simply be designated "personal" but business use should show enough detail to enable you to prove the relationship to your work, if necessary in an audit.
Bonus depreciation, expensing limited for vehicles
Automobiles and other vehicles are subject to strict depreciation and expenses rules and limitations. Unlike other assets, there are limits on the amount of annual depreciation (regular or bonus) that can be claimed for passenger cars.
While the expensing limit for general business property is $500,000 for 2017 and the bonus depreciation percentage 50 percent for 2017, the maximum first-year deduction for your business car is much lower.
For 2017, the limit is $3,160 for cars and $3,560 for trucks and vans. If you choose to take bonus depreciation, then the 2017 limits are increased by only $8,000, to $11,160 for cars and $11,560 for trucks and vans.
Ongoing depreciation deductions are severely limited.
The maximum amounts that may be deducted under the combination of the MACRS depreciation method, under the Section 179 expensing election, and under the bonus depreciation rules for the first year, are known as the "luxury car limitations" (although in reality they apply to cars valued at a moderate cost). They are provided by the IRS in the form of a chart:
|Passenger Car Depreciation Allowable|
|Year(s) Placed in Service||Year 1||Year 2||Year 3|| Year 4
|2017 through 2012
||$3,160 or $11,160*||$5,100||$3,050||$1,875|
|2011 and 2010||$3,060 or $11,060*||$4,900||$2,950||$1,775|
|2009 and 2008||$2,960 or 10,960*||$4,800||$2,850||$1,775|
|* Higher amount if bonus depreciation claimed|
Note that the maximum annual amounts shown in the chart assume that the vehicle was used 100 percent for business. The amounts must be proportionately reduced if your business use of the vehicle was less than 100 percent. If the business use in less than 50 percent, then special limitations (discussed below) apply.
Example: In 2016, you purchased a new car. Sixty percent of the mileage you drove during the year was for business purposes. So, your maximum depreciation deduction (regular plus bonus depreciation) for the first year would be $11,160 x .60 = $6,696.
For later years, you must compute your depreciation on the car using the usual methods, but can't deduct more than the amount shown in the chart. As long as you continue to use the car more than 50 percent for business, you would multiply the business percentage of the car's cost by the percentage shown in the normal MACRS table for five-year property. The dollar amounts in the chart above, reduced proportionately for any non-business use of the car, acts as a ceiling on the amount of depreciation you can actually claim.
Business use of 50 percent or less.
If you use the car 50 percent or less for business, you must use the straight-line ADS method for five-year property for that year, and for every subsequent year.
If you started out depreciating the car under MACRS, but then your business use dropped to 50 percent or less which required you to switch to the straight-line ADS method, you will have to "give back" some of the depreciation you claimed. Specifically, you'll have to report as income the amount (if any) by which the total MACRS depreciation you claimed is greater than the total straight-line depreciation you would have been entitled to claim.
If you own a relatively lower-priced car, you can expect to recover the entire basis of the business portion of the car over the six tax years for which the MACRS depreciation deductions are generally claimed.
However, when part of the normal MACRS deduction is disallowed because of the luxury car limitations, you'll recover only a portion of the car's basis during the normal recovery period. In that case, you may continue to depreciate the car for as long as it takes to recover the remaining basis of the business portion of the car.
Special limits apply for some SUVs
A van, truck, or sport-utility vehicle that weighs over 6,000 pounds and is built on a truck chassis, it is not subject to the annual depreciation dollar caps or the annual lease income inclusion rules. In addition, you can elect to expense up to $25,000 in the year you acquire the the vehicle, which is substantially higher than the amount allowed for passenger cars and lighter weight SUVs, vans and trucks.
Vehicle eligibility is based on a Gross Vehicle Weight Rating (GVWR), which is the maximum allowable weight of a fully loaded vehicle (i.e., weight of vehicle, including vehicle options, passengers, cargo, gas, oil, coolant, etc.). Generally, the GVWR is equal to the sum of the vehicle's curb weight and payload capacity. The GVWR of a particular vehicle is usually located on the vehicle's Safety Compliance Certification Label, usually attached to the left front door lock facing or the door latch post pillar.
Trucks and vans not subject to the rules.
The term "sport utility vehicle" and, thus, the new $25,000 limit, does not apply to any vehicle that:
- is designed to have a seating capacity of more than nine persons behind the driver's seat,
- is equipped with a cargo area of at least six feet in interior length which is an open area or is designed for use as an open area but is enclosed by a cap and is not readily accessible directly from the passenger compartment, or
- has an integral enclosure, fully enclosing the driver compartment and load carrying device, does not have seating rearward of the driver's seat, and has no body section protruding more than 30 inches ahead of the leading edge of the windshield.