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IRS.gov Website
Publication 534
taxmap/pubs/p534-010.htm#en_us_publink100043696

Predominant Use Test(p10)

rule
If "listed property," defined earlier, placed in service after June 18, 1984, is not used predominantly (more than 50%) in a qualified business use during any tax year:
taxmap/pubs/p534-010.htm#en_us_publink100043697

Listed property placed in service before 1987.(p10)

rule
For listed property placed in service before 1987, depreciate the property over the following period:
Class of PropertyListed Property
Recovery Period
3-year property5 years
5-year property12 years
10-year property25 years
18-year real property 40 years
19-year real property40 years
If you must use the above recovery periods for listed property not used predominantly in a trade or business, use the percentages from Table 16 titled Listed Property Not Used Predominantly (Other Than 18- or 19-Year Real Property), and Table 17 for 18- or 19-year real property, near the end of this publication in the Appendix.
taxmap/pubs/p534-010.htm#en_us_publink100043699

Listed property placed in service after 1986.(p10)

rule
For information on listed property placed in service after 1986, see Pub. 946.
taxmap/pubs/p534-010.htm#en_us_publink100043700

Meeting the Predominant Use Test(p10)

rule
Listed property meets the predominant use test for any tax year if its business use is more than 50% of its total use. You must allocate the use of any item of listed property used for more than one purpose during the tax year among its various uses. The percentage of investment use of listed property cannot be used as part of the percentage of qualified business use to meet the predominant use test. However, the combined total of business and investment use is taken into account to figure your depreciation deduction for the property.
Note. Property does not stop being predominantly used in a qualified business use because of a transfer at death.
taxmap/pubs/p534-010.htm#en_us_publink100043702

Example.(p10)

Sarah Bradley uses a home computer 50% of the time to manage her investments. She also uses the computer 40% of the time in her part-time consumer research business. Sarah's home computer is listed property because it is not used at a regular business establishment. Because her business use of the computer does not exceed 50%, the computer is not predominantly used in a qualified business use for the tax year. Because she does not meet the predominant use test, she cannot elect a section 179 deduction for this property. Her combined rate of business/investment use for determining her depreciation deduction is 90%.
taxmap/pubs/p534-010.htm#en_us_publink100043703

Qualified Business Use(p11)

rule
A qualified business use is any use in your trade or business. However, it does not include:
  1. The use of property held merely to produce income (investment use),
  2. The leasing of property to any 5% owner or related person (to the point that the property is used by a 5% owner or person related to the owner or lessee of the property),
  3. The use of property as compensation for the performance of services by a 5% owner or related person, or
  4. The use of property as compensation for the performance of services by any person (other than a 5% owner or related person) unless the value of the use is included in that person's gross income for the use of the property and income tax is withheld on that amount where required. See Employees, later.
taxmap/pubs/p534-010.htm#en_us_publink100043704

5% owner.(p11)

rule
A 5% owner of a business, other than a corporation, is any person who owns more than 5% of the capital or profits interest in the business.
A 5% owner of a corporation is any person who owns, or is considered to own:
taxmap/pubs/p534-010.htm#en_us_publink100043705

Related person.(p11)

rule
A related person is anyone related to a taxpayer as discussed under Related persons in chapter 1 in Pub. 946.
taxmap/pubs/p534-010.htm#en_us_publink100043706

Entertainment Use(p11)

rule
The use of listed property for entertainment, recreation, or amusement purposes is treated as a qualified business use only to the extent that expenses (other than interest and property tax expenses) for its use are deductible as ordinary and necessary business expenses. See Pub. 463.
taxmap/pubs/p534-010.htm#en_us_publink100043707

Leasing or Compensatory Use of Aircraft(p11)

rule
If at least 25% of the total use of any aircraft during the tax year is for a qualified business use, the leasing or compensatory use of the aircraft by a 5% owner or related person is treated as a qualified business use.
taxmap/pubs/p534-010.htm#en_us_publink100043708

Commuting(p11)

rule
The use of a vehicle for commuting is not business use, regardless of whether work is performed during the trip.
taxmap/pubs/p534-010.htm#en_us_publink100043709

Use of Your Passenger Automobile by Another Person(p11)

rule
If someone else uses your automobile, that use is not business use unless:
  1. That use is directly connected with your business,
  2. The value of the use is properly reported by you as income to the other person and tax is withheld on the income where required, or
  3. The value of the use results in a payment of fair market rent.
Any payment to you for the use of the automobile is treated as a rent payment for purposes of item (3).
taxmap/pubs/p534-010.htm#en_us_publink100043710

Employees(p11)

rule
Any use by an employee of his or her own listed property (or listed property rented by an employee) in performing services as an employee is not business use unless:
taxmap/pubs/p534-010.htm#en_us_publink100043711

Use for the employer's convenience.(p11)

rule
Whether the use of listed property is for the employer's convenience must be determined from all the facts. The use is for the employer's convenience if it is for a substantial business reason of the employer. The use of listed property during the employee's regular working hours to carry on the employer's business is generally for the employer's convenience.
taxmap/pubs/p534-010.htm#en_us_publink100043712

Use required as a condition of employment.(p11)

rule
Whether the use of listed property is a condition of employment depends on all the facts and circumstances. The use of property must be required for the employee to perform duties properly. The employer need not explicitly require the employee to use the property. A mere statement by the employer that the use of the property is a condition of employment is not sufficient.
taxmap/pubs/p534-010.htm#en_us_publink100043713

Example 1.(p11)

Virginia Sycamore is employed as a courier with We Deliver which provides local courier services. She owns and uses a motorcycle to deliver packages to downtown offices. We Deliver explicitly requires all delivery persons to own a small car or motorcycle for use in their employment. The company reimburses delivery persons for their costs. Virginia's use of the motorcycle is for the convenience of We Deliver and is required as a condition of employment.
taxmap/pubs/p534-010.htm#en_us_publink100043714

Example 2.(p11)

Bill Nelson is an inspector for Uplift, a construction company with many sites in the local area. He must travel to these sites on a regular basis. Uplift does not furnish an automobile or explicitly require him to use his own automobile. However, it reimburses him for any costs he incurs in traveling to the various sites. The use of his own automobile or a rental automobile is for the convenience of Uplift and is required as a condition of employment.
taxmap/pubs/p534-010.htm#en_us_publink100043715

Method of Allocating Use(p11)

rule
For passenger automobiles and other means of transportation, allocate the property's use on the basis of mileage. You determine the percentage of qualified business use by dividing the number of miles the vehicle is driven for business purposes during the year by the total number of miles the vehicle is driven for all purposes (including business miles) during the year.
For other items of listed property, allocate the property's use on the basis of the most appropriate unit of time. For example, you can determine the percentage of business use of a computer by dividing the number of hours the computer is used for business purposes during the year by the total number of hours the computer is used for all purposes (including business hours) during the year.
taxmap/pubs/p534-010.htm#en_us_publink100043716

Applying the Predominant Use Test(p11)

rule
You must apply the predominant use test for an item of listed property each year of the recovery period.
taxmap/pubs/p534-010.htm#en_us_publink100043717

First Recovery Year(p11)

rule
If any item of listed property is not used predominantly in a qualified business use in the year it is placed in service:
  1. The property is not eligible for a section 179 deduction, and
  2. The depreciation deduction must be figured using the straight line method.
Note. The required use of the straight line method for an item of listed property that does not meet the predominant use test is not the same as electing the straight line method. It does not mean that you have to use the straight line method for other property in the same class as the item of listed property.
taxmap/pubs/p534-010.htm#en_us_publink100043719

Years After the First Recovery Year(p11)

rule
If you use listed property predominantly (more than 50%) in a qualified business use in the tax year you place it in service, but not in a subsequent tax year during the recovery period, the following rules apply.
  1. Figure depreciation using the straight line method. Do this for each year, beginning with the year you no longer use the property predominantly in a qualified business use.
  2. Figure any excess depreciation on the property and add it to:
    1. Your gross income, and
    2. The adjusted basis of your property.
See Recapture of excess depreciation next.
taxmap/pubs/p534-010.htm#en_us_publink100043720

Recapture of excess depreciation.(p11)

rule
You must include any excess depreciation in your gross income for the first tax year the property is not predominantly used in a qualified business use. Any excess depreciation must also be added to the adjusted basis of your property. Excess depreciation is the excess (if any) of:
  1. The amount of depreciation allowable for the property (including any section 179 deduction claimed) for tax years before the first tax year the property was not predominantly used in a qualified business use, over
  2. The amount of depreciation that would have been allowable for those years if the property were not used predominantly in a qualified business use for the year it was placed in service. This means you figure your depreciation using the percentages from Table 16 or 17.
For information on investment credit recapture, see the instructions for Form 4255.