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Publication 946

Which Property Class Applies Under GDS?(p30)


Words you may need to know (see Glossary)

The following is a list of the nine property classifications under GDS and examples of the types of property included in each class. These property classes are also listed under column (a) in section B, Part III, of Form 4562. For detailed information on property classes, see Appendix B, Table of Class Lives and Recovery Periods, in this publication.
  1. 3-year property.
    1. Tractor units for over-the-road use.
    2. Any race horse over 2 years old when placed in service. (All race horses placed in service after December 31, 2008, and before January 1, 2017, are deemed to be 3-year property, regardless of age.)
    3. Any other horse (other than a race horse) over 12 years old when placed in service.
    4. Qualified rent-to-own property (defined later).
  2. 5-year property.
    1. Automobiles, taxis, buses, and trucks.
    2. Computers and peripheral equipment.
    3. Office machinery (such as typewriters, calculators, and copiers).
    4. Any property used in research and experimentation.
    5. Breeding cattle and dairy cattle.
    6. Appliances, carpets, furniture, etc., used in a residential rental real estate activity.
    7. Certain geothermal, solar, and wind energy property.
  3. 7-year property.
    1. Office furniture and fixtures (such as desks, files, and safes).
    2. Agricultural machinery and equipment.
    3. Railroad track.
    4. Any property that does not have a class life and has not been designated by law as being in any other class.
    5. Certain motorsports entertainment complex property (defined later) placed in service before January 1, 2017.
    6. Any natural gas gathering line placed in service after April 11, 2005. See Natural gas gathering line and electric transmission property, later.
  4. 10-year property.
    1. Vessels, barges, tugs, and similar water transportation equipment.
    2. Any single purpose agricultural or horticultural structure.
    3. Any tree or vine bearing fruits or nuts.
    4. Qualified small electric meter and qualified smart electric grid system (defined later) placed in service on or after October 3, 2008.
  5. 15-year property.
    1. Certain improvements made directly to land or added to it (such as shrubbery, fences, roads, sidewalks, and bridges).
    2. Any retail motor fuels outlet (defined later), such as a convenience store.
    3. Any municipal wastewater treatment plant.
    4. Any qualified leasehold improvement property (defined later).
    5. Any qualified restaurant property (defined later).
    6. Initial clearing and grading land improvements for gas utility property.
    7. Electric transmission property (that is section 1245 property) used in the transmission at 69 or more kilovolts of electricity placed in service after April 11, 2005. See Natural gas gathering line and electric transmission property, later.
    8. Any natural gas distribution line placed in service after April 11, 2005, and before January 1, 2011.
    9. Any qualified retail improvement property.
    10. Any telephone distribution plant and comparable equipment used for 2-way exchange of voice and data communications.
  6. 20-year property.
    1. Farm buildings (other than single purpose agricultural or horticultural structures).
    2. Municipal sewers not classified as 25-year property.
    3. Initial clearing and grading land improvements for electric utility transmission and distribution plants.
  7. 25-year property. This class is water utility property, which is either of the following.
    1. Property that is an integral part of the gathering, treatment, or commercial distribution of water, and that, without regard to this provision, would be 20-year property.
    2. Municipal sewers other than property placed in service under a binding contract in effect at all times since June 9, 1996.
  8. Residential rental property. This is any building or structure, such as a rental home (including a mobile home), if 80% or more of its gross rental income for the tax year is from dwelling units. A dwelling unit is a house or apartment used to provide living accommodations in a building or structure. It does not include a unit in a hotel, motel, or other establishment where more than half the units are used on a transient basis. If you occupy any part of the building or structure for personal use, its gross rental income includes the fair rental value of the part you occupy.
  9. Nonresidential real property. This is section 1250 property, such as an office building, store, or warehouse, that is neither residential rental property nor property with a class life of less than 27.5 years.

Qualified rent-to-own property.(p31)

Qualified rent-to-own property is property held by a rent-to-own dealer for purposes of being subject to a rent-to-own contract. It is tangible personal property generally used in the home for personal use. It includes computers and peripheral equipment, televisions, videocassette recorders, stereos, camcorders, appliances, furniture, washing machines and dryers, refrigerators, and other similar consumer durable property. Consumer durable property does not include real property, aircraft, boats, motor vehicles, or trailers.
If some of the property you rent to others under a rent-to-own agreement is of a type that may be used by the renters for either personal or business purposes, you still can treat this property as qualified property as long as it does not represent a significant portion of your leasing property. However, if this dual-use property does represent a significant portion of your leasing property, you must prove that this property is qualified rent-to-own property.
Rent-to-own dealer.(p31)
You are a rent-to-own dealer if you meet all the following requirements.
Rent-to-own contract.(p32)
This is any lease for the use of consumer property between a rent-to-own dealer and a customer who is an individual which—

Motorsports entertainment complex.(p32)

This is a racing track facility permanently situated on land that hosts one or more racing events for automobiles, trucks, or motorcycles during the 36-month period after the first day of the month in which the facility is placed in service. The events must be open to the public for the price of admission.

Qualified smart electric grid system.(p32)

A qualified smart electric grid system means any smart grid property used as part of a system for electric distribution grid communications, monitoring, and management placed in service after October 3, 2008, by a taxpayer who is a supplier of electrical energy or a provider of electrical energy services. Smart grid property includes electronics and related equipment that is capable of:

Retail motor fuels outlet.(p32)

Real property is a retail motor fuels outlet if it is used to a substantial extent in the retail marketing of petroleum or petroleum products (whether or not it is also used to sell food or other convenience items) and meets any one of the following three tests. A retail motor fuels outlet does not include any facility related to petroleum and natural gas trunk pipelines.

Qualified leasehold improvement property.(p32)

Generally, this is any improvement to an interior part of a building that is nonresidential real property, if all of the following requirements are met.
However, a qualified leasehold improvement does not include any improvement for which the expenditure is attributable to any of the following.
Generally, a binding commitment to enter into a lease is treated as a lease and the parties to the commitment are treated as the lessor and lessee. However, a lease between related persons is not treated as a lease.
In addition, an improvement made by the lessor does not qualify as qualified leasehold improvement property to any subsequent owner unless it is acquired from the original lessor by reason of the lessor's death or in any of the following types of transactions.
  1. A transaction to which section 381(a) applies,
  2. A mere change in the form of conducting the trade or business so long as the property is retained in the trade or business as qualified leasehold improvement property and the taxpayer retains a substantial interest in the trade or business,
  3. A like-kind exchange, involuntary conversion, or reacquisition of real property to the extent that the basis in the property represents the carryover basis, or
  4. Certain nonrecognition transactions to the extent that your basis in the property is determined by reference to the transferor's or distributor's basis in the property. Examples include the following.
    1. A complete liquidation of a subsidiary.
    2. A transfer to a corporation controlled by the transferor.
    3. An exchange of property by a corporation solely for stock or securities in another corporation in a reorganization.

Qualified restaurant property.(p33)

Qualified restaurant property is any section 1250 property that is a building, or an improvement to a building, placed in service after December 31, 2008. Also, more than 50% of the building's square footage must be devoted to preparation of meals and seating for on-premises consumption of prepared meals.

Qualified smart electric meter.(p33)

A qualified smart electric meter is any time-based meter and related communication equipment which is placed in service by a supplier of electric energy or a provider of electric energy services and which is capable of being used by you as part of a system that:

Natural gas gathering line and electric transmission property.(p33)

Any natural gas gathering line placed in service after April 11, 2005, is treated as 7-year property, and electric transmission property (that is section 1245 property) used in the transmission at 69 or more kilovolts of electricity and any natural gas distribution line placed in service after April 11, 2005, are treated as 15-year property, if the following requirements are met.