IRS Form 4562 - Depreciation and Amortization
An Overview of Form 4562 (Depreciation and Amortization)
- Updated November 07, 2024 - 2.00 PM - Admin, Tax990
Form 4562 is used to claim depreciation and amortization deductions on business property, allowing businesses to deduct the cost of assets over time in the year they are acquired. Tax-exempt organizations qualified to claim tax deductions for depreciation and amortization can attach Form 4562 with their 990-T.
In this article, we'll explore everything you need to know about Form 4562.
Table of Contents
What information is needed to complete Form 4562?
Form 3800 requires the following key pieces of information, which includes:
Basic information about your organization.
Election to expense certain property
Special depreciation allowance and other depreciation
MACRS depreciation
Details of the listed property, which includes automobiles, certain other vehicles, certain aircraft, and property used for entertainment, recreation, or amusement.
Information regarding amortization
What’s New in Form 4562?
For tax years beginning in 2023, the maximum section 179 expense deduction is $1,160,000. This limit is reduced by the amount by which the cost of section 179 property placed in service during the tax year exceeds $2,890,000. Also, the maximum section 179 expense deduction for sport utility vehicles (SUVs) placed in service in tax years beginning in 2023 is $28,900.
How to complete IRS Form 4562?
The IRS Form 4562 (Depreciation and Amortization) consists of six parts, and here are the instructions for completing each part.
Basic Information About Your Organization
Initially, you have to provide the basic details about your organization, such as,
Organization’s name
Business or activity the form related with Identifying number
Part I - Election To Expense Certain Property Under Section 179
To complete Part I, you have to provide details regarding the election to expense certain property under Section 179. This section is only for property used for business (not personal). For each listed property (like vehicles), complete Part V before you fill in this part.
Here’s a line-by-line guide to complete Part I:
What is Section 179?
Section 179 allows business taxpayers to deduct the cost of specific properties as an expense at the time the property is first put into use. 4562
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Line 1:
Enter the maximum dollar amount allowed for Section 179 expenses. This limit might change yearly. Check the IRS instructions for the current limit.
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Line 2:
Enter the total cost of all property under Section 179 that was placed in service this tax year.
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Line 3:
Enter the threshold cost of Section 179 property, which is the maximum amount you can deduct under Section 179 that is limited to the dollar amount on line 1. Refer to the IRS instructions for this amount, as it may vary each year.
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Line 4:
Subtract line 3 from line 2. If the result is zero or less, enter ‘-0-’.
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Line 5:
Subtract line 4 from line 1. This gives the dollar limit for the tax year.
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Line 6-7:
If you have any ‘listed property’ (vehicles or assets used for both personal and business purposes), include it here and the amount from line 29.
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Line 8:
Calculate the total elected cost of the Section 179 property you want to expense. Add all the costs listed in column (c) of lines 6 and 7.
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Line 9:
Enter the tentative deduction, which is the smaller amount of either line 5 or line 8.
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Line 10:
If you have any disallowed Section 179 deduction from previous years, bring it forward here.
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Line 11:
If your business income is limited, enter the smaller of your business income or the amount on line 5.
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Line 12:
Your final Section 179 expense deduction is calculated here. Add lines 9 and 10, but do not enter more than the amount in line 11.
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Line 13:
Calculate the carryover by adding lines 9 and 10, then subtracting line 12.
Part II - Special Depreciation Allowance and Other Depreciation
This is the simplest part of this form, which requires the details regarding special depreciation allowance and other depreciation not included in the listed property.
What is Depreciation?
Depreciation refers to the gradual decrease in the value of the tangible assets acquired by a business over a period of time.
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Line 14:
Enter the special depreciation allowance for qualified properties placed in service this tax year.
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Line 15:
Enter the depreciation of the property subject to the section 168(f)(1) election, i.e., the depreciation for property that you elect to depreciate under the unit-of-production method or any other method not based on a term of years. You must attach a separate sheet that provides description of the property, depreciation method you elect and
depreciable basis. -
Line 16:
Enter other depreciation amounts, including ACRS (properties put in service before 1987).
Part III - MACRS Depreciation
This part comprises three sections that require detailed information regarding the MACRS depreciation.
What is MACRS?
MACRS refers to the ‘Modified Accelerated Cost Recovery System’ and is used to depreciate any tangible property placed in service after 1986.
Section A
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Line 17:
Enter the MACRS deduction for assets placed in service in the tax years before 2023.
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Line 18:
Check the box if you choose to group any assets in service during the tax year into one or more general assets accounts.
Section B - Assets Placed in Service During 2023 Tax Year Using the General Depreciation System
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Line 19(a - i):
These lines should be used for assets that are placed in service at the beginning of the 2023 tax year and are depreciated using GDS, with the exception of automobiles and other listed property
(which should be reported in Part V).
Section C - Assets Placed in Service During 2023 Tax Year Using the Alternative Depreciation System
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Line 20(a - d):
These lines require you to report depreciation under ADS for certain property types. Each line requires details on the property classification, date placed in service, basis, recovery period, and depreciation method.
Part IV - Summary
In this summary part, you are required to provide the following information:
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Line 21:
Enter the depreciation for the listed property.
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Line 22:
Add amounts from Line 12, Lines 14-17, Lines 19-20 (column g), and Line 21. Enter the total in this line.
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Line 23:
Enter the portion of the asset's cost (basis) related to Section 263A costs if the asset was placed in service this tax year.
Part V - Listed Property
This part consists of three sections. Here, you’ve to provide comprehensive details about the listed property.
If you’re using the standard mileage rate or deducting lease expenses for a vehicle, you are required to complete only:
Line 24a and 24b (columns (a) through (c)) in Section A
All of Section B
Section C (if applicable)
What is a Listed Property?
Listed property refers to certain types of business assets that the IRS identifies as having potential for both personal and business use.
The most common types of listed properties include automobiles, aircraft, and properties used for entertainment, recreation, or amusement.
Section A - Depreciation and Other Information
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Line 24(a & b):
Indicate whether you have evidence to support the business/investment use claimed by checking the ‘yes’ or ‘no’. If ‘Yes’, indicate whether the evidence is written or not.
Section B - Information on Use of Vehicles
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Line 30 - 36:
You (employers) must complete these lines for each vehicle listed in Section A. However, your are exempt from this requirement for vehicles used by employees who own 5% or less of the business or are related persons, provided that certain questions (lines 37-41) are answered "Yes."
Section C - Questions for Employers Who Provide Vehicles for Use by Their Employees
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Line 37 - 41:
Answer ‘Yes’ or ‘No’ to the applicable lines regarding the maintenance of a written policy statement that prohibits personal use of vehicles by employees under specified circumstances. Also, specify whether you provide more than five vehicles, collect usage information from employees, retain that information, and meet the requirements for qualified automobile demonstration use.
Part VI - Amortization
This is the final part of the form which requires you to provide the amortization details.
What is Amortization?
Amortization refers to the gradual reduction in the value of intangible assets of the business over a period of time. Intangible assets include patents, trademarks, copyrights, and franchises.
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Line 42:
Enter the details about the amortization costs began on 2023 tax year, which includes,
Description of the cost
Beginning date of amortization
Amortization amount
Code section
Amortization period or percentage
Amortization for the current year.
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Line 43:
Include the amortization cost started before the 2023 tax year.
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Line 44:
Add all the amounts in column (f) and enter the total.
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