skip navigation
Search Help
Navigation Help

Tax Map Index

Tax Topic Index

Affordable Care Act
Tax Topic Index

Exempt Organization
Tax Topic Index

Tax Topics

About Tax Map Website
Publication 534


Retirement is the permanent withdrawal of depreciable property from use in your trade or business or for the production of income. You can do this by selling, exchanging, or abandoning the item of property. You can also withdraw it from use without disposing of it. For example, you could place it in a supplies or scrap account. Retirements can be either normal or abnormal depending on all facts and circumstances. The rules discussed next do not apply to MACRS and ACRS property.

Normal retirement.(p9)

A normal retirement is a permanent withdrawal of depreciable property from use if the following apply.
  1. The retirement is made within the useful life you estimated originally.
  2. The property has reached a condition at which you customarily retire or would retire similar property from use.
A retirement is generally considered normal unless you can show that you retired the property because of a reason you did not consider when you originally estimated the useful life of the property.

Abnormal retirement.(p9)

A retirement can be abnormal if you withdraw the property early or under other circumstances. For example, if the property is damaged by a fire or suddenly becomes obsolete and is now useless.

Gain or loss on retirement.(p9)

There are special rules for figuring the gain or loss on retirement of property. The gain or loss will depend on several factors. These include the type of withdrawal, if the withdrawal was from a single property or multiple property account, and if the retirement was normal or abnormal. A single property account contains only one item of property. A multiple property account is one in which several items have been combined with a single rate of depreciation assigned to the entire account.
Sale or exchange.(p9)
If property is retired by sale or exchange, you figure gain or loss by the usual rules that apply to sales or other dispositions of property. See Pub. 544.
Property not disposed of or abandoned.(p9)
If property is retired permanently, but not disposed of or physically abandoned, you do not recognize gain. You are allowed a loss in such a case, but only if the retirement is:
  1. An abnormal retirement,
  2. A normal retirement from a single property account in which you determined the life of each item of property separately, or
  3. A normal retirement from a multiple property account in which the depreciation rate is based on the maximum expected life of the longest lived item of property and the loss occurs before the expiration of the full useful life. However, you are not allowed a loss if the depreciation rate is based on the average useful life of the items of property in the account.
To figure your loss, subtract the estimated salvage or fair market value of the property at the date of retirement, whichever is more, from its adjusted basis.
Special rule for normal retirements from item accounts.(p9)
You can generally deduct losses upon retirement of a few depreciable items of property with similar useful lives, if:
  1. You account for each one in a separate account, and
  2. You use the average useful life to figure depreciation.
However, you cannot deduct losses if you use the average useful life to figure depreciation and they have a wide range of useful lives.
If you have a large number of depreciable property items and use average useful lives to figure depreciation, you cannot deduct the losses upon normal retirements from these accounts.
Abandoned property.(p9)
If you physically abandon property, you can deduct as a loss the adjusted basis of the property at the time of its abandonment. However, your intent must be to discard the property so that you will not use it again or retrieve it for sale, exchange, or other disposition.

Basis of property retired.(p9)

The basis for figuring gain or loss on the retirement of property is its adjusted basis at the time of retirement, as determined in the following discussions.
Single item accounts.(p9)
If an item of property is accounted for in a single item account, the adjusted basis is the basis you would use to figure gain or loss for a sale or exchange of the property. This is generally the cost or other basis of the item of property less depreciation. See Pub. 551.
Multiple property account.(p9)
For a normal retirement from a multiple property account, if you figured depreciation using the average expected useful life, the adjusted basis is the salvage value estimated for the item of property when it was originally acquired. If you figured depreciation using the maximum expected useful life of the longest lived item of property in the account, you must use the depreciation method used for the multiple property account and a rate based on the maximum expected useful life of the item of property retired.
You make the adjustment for depreciation for an abnormal retirement from a multiple property account at the rate that would be proper if the item of property was depreciated in a single property account. The method of depreciation used for the multiple property account is used. You base the rate on either the average expected useful life or the maximum expected useful life of the retired item of property, depending on the method used to determine the depreciation rate for the multiple property account.