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Publication 946


Appendix B — Table of Class Lives and Recovery Periods(p98)

The Table of Class Lives and Recovery Periods has two sections. The first section, Specific Depreciable Assets Used In All Business Activities, Except As Noted, generally lists assets used in all business activities. It is shown as Table B-1. The second section, Depreciable Assets Used In The Following Activities, describes assets used only in certain activities. It is shown as Table B-2.

How To Use the Tables(p98)

You will need to look at both Table B-1 and B-2 to find the correct recovery period. Generally, if the property is listed in Table B-1 you use the recovery period shown in that table. However, if the property is specifically listed in Table B-2 under the type of activity in which it is used, you use the recovery period listed under the activity in that table. Use the tables in the order shown below to determine the recovery period of your depreciable property.

Table B-1.(p98)

Check Table B-1 for a description of the property. If it is described in Table B-1, also check Table B-2 to find the activity in which the property is being used. If the activity is described in Table B-2, read the text (if any) under the title to determine if the property is specifically included in that asset class. If it is, use the recovery period shown in the appropriate column of Table B-2 following the description of the activity. If the activity is not described in Table B-2 or if the activity is described but the property either is not specifically included in or is specifically excluded from that asset class, then use the recovery period shown in the appropriate column following the description of the property in Table B-1.

Tax-exempt use property subject to a lease.(p98)

The recovery period for ADS cannot be less than 125 percent of the lease term for any property leased under a leasing arrangement to a tax-exempt organization, governmental unit, or foreign person or entity (other than a partnership).

Table B-2.(p98)

If the property is not listed in Table B-1, check Table B-2 to find the activity in which the property is being used and use the recovery period shown in the appropriate column following the description.

Property not in either table.(p98)

If the activity or the property is not included in either table, check the end of Table B-2 to find Certain Property for Which Recovery Periods Assigned. This property generally has a recovery period of 7 years for GDS or 12 years for ADS. See Which Property Class Applies Under GDS and Which Recovery Period Applies in chapter 4 for the class lives or the recovery periods for GDS and ADS for the following.

Example 1.(p98)

Richard Green is a paper manufacturer. During the year, he made substantial improvements to the land on which his paper plant is located. He checks Table B-1 and finds land improvements under asset class 00.3. He then checks Table B-2 and finds his activity, paper manufacturing, under asset class 26.1, Manufacture of Pulp and Paper. He uses the recovery period under this asset class because it specifically includes land improvements. The land improvements have a 13-year class life and a 7-year recovery period for GDS. If he elects to use ADS, the recovery period is 13 years. If Richard only looked at Table B-1, he would select asset class 00.3, Land Improvements, and incorrectly use a recovery period of 15 years for GDS or 20 years for ADS.

Example 2.(p98)

Sam Plower produces rubber products. During the year, he made substantial improvements to the land on which his rubber plant is located. He checks Table B-1 and finds land improvements under asset class 00.3. He then checks Table B-2 and finds his activity, producing rubber products, under asset class 30.1, Manufacture of Rubber Products. Reading the headings and descriptions under asset class 30.1, Sam finds that it does not include land improvements. Therefore, Sam uses the recovery period under asset class 00.3. The land improvements have a 20-year class life and a 15-year recovery period for GDS. If he elects to use ADS, the recovery period is 20 years.

Example 3.(p98)

Pam Martin owns a retail clothing store. During the year, she purchased a desk and a cash register for use in her business. She checks Table B-1 and finds office furniture under asset class 00.11. Cash registers are not listed in any of the asset classes in Table B-1. She then checks Table B-2 and finds her activity, retail store, under asset class 57.0, Distributive Trades and Services, which includes assets used in wholesale and retail trade. This asset class does not specifically list office furniture or a cash register. She looks back at Table B-1 and uses asset class 00.11 for the desk. The desk has a 10-year class life and a 7-year recovery period for GDS. If she elects to use ADS, the recovery period is 10 years. For the cash register, she uses asset class 57.0 because cash registers are not listed in Table B-1 but it is an asset used in her retail business. The cash register has a 9-year class life and a 5-year recovery period for GDS. If she elects to use the ADS method, the recovery period is 9 years.


Abstract fees:(p110)
Expenses generally paid by a buyer to research the title of real property.
Active conduct of a trade or business:(p110)
Generally, for the section 179 deduction, a taxpayer is considered to conduct a trade or business actively if he or she meaningfully participates in the management or operations of the trade or business. A mere passive investor in a trade or business does not actively conduct the trade or business.
Adjusted basis:(p110)
The original cost of property, plus certain additions and improvements, minus certain deductions such as depreciation allowed or allowable and casualty losses.
A ratable deduction for the cost of intangible property over its useful life.
Amount realized:(p110)
The total of all money received plus the fair market value of all property or services received from a sale or exchange. The amount realized also includes any liabilities assumed by the buyer and any liabilities to which the property transferred is subject, such as real estate taxes or a mortgage.
A measure of an individual's investment in property for tax purposes.
Business/investment use:(p110)
Usually, a percentage showing how much an item of property, such as an automobile, is used for business and investment purposes.
Expended or treated as an item of a capital nature. A capitalized amount is not deductible as a current expense and must be included in the basis of property.
Circumstantial evidence:(p110)
Details or facts which indirectly point to other facts.
Class life:(p110)
A number of years that establishes the property class and recovery period for most types of property under the General Depreciation System (GDS) and Alternative Depreciation System (ADS).
Travel between a personal home and work or job site within the area of an individual's tax home.
A method established under the Modified Accelerated Cost Recovery System (MACRS) to determine the portion of the year to depreciate property both in the year the property is placed in service and in the year of disposition.
Declining balance method:(p110)
An accelerated method to depreciate property. The General Depreciation System (GDS) of MACRS uses the 150% and 200% declining balance methods for certain types of property. A depreciation rate (percentage) is determined by dividing the declining balance percentage by the recovery period for the property.
The permanent withdrawal from use in a trade or business or from the production of income.
Documentary evidence:(p110)
Written records that establish certain facts.
To barter, swap, part with, give, or transfer property for other property or services.
Fair market value (FMV):(p110)
The price that property brings when it is offered for sale by one who is willing but not obligated to sell, and is bought by one who is willing or desires to buy but is not compelled to do so.
The one who acts on behalf of another as a guardian, trustee, executor, administrator, receiver, or conservator.
Fungible commodity:(p110)
A commodity of a nature that one part may be used in place of another part.
An intangible property such as the advantage or benefit received in property beyond its mere value. It is not confined to a name but can also be attached to a particular area where business is transacted, to a list of customers, or to other elements of value in business as a going concern.
The one who transfers property to another.
An addition to or partial replacement of property that adds to its value, appreciably lengthens the time you can use it, or adapts it to a different use.
Intangible property:(p110)
Property that has value but cannot be seen or touched, such as goodwill, patents, copyrights, and computer software.
Listed property:(p110)
Passenger automobiles; any other property used for transportation; property of a type generally used for entertainment, recreation or amusement; and computers and their peripheral equipment (unless used only at a regular business establishment and owned or leased by the person operating the establishment).
Nonresidential real property:(p110)
Most real property other than residential rental property.
Placed in service:(p110)
Ready and available for a specific use whether in a trade or business, the production of income, a tax-exempt activity, or a personal activity.
Property class:(p110)
A category for property under MACRS. It generally determines the depreciation method, recovery period, and convention.
To include as income on your return an amount allowed or allowable as a deduction in a prior year.
Recovery period:(p110)
The number of years over which the basis of an item of property is recovered.
Remainder interest:(p110)
That part of an estate that is left after all the other provisions of a will have been satisfied.
Residential rental property:(p110)
Real property, generally buildings or structures, if 80% or more of its annual gross rental income is from dwelling units.
Salvage value:(p111)
An estimated value of property at the end of its useful life. Not used under MACRS.
Section 1245 property:(p111)
Property that is or has been subject to an allowance for depreciation or amortization. Section 1245 property includes personal property, single purpose agricultural and horticultural structures, storage facilities used in connection with the distribution of petroleum or primary products of petroleum, and railroad grading or tunnel bores.
Section 1250 property:(p111)
Real property (other than section 1245 property) which is or has been subject to an allowance for depreciation.
Standard mileage rate:(p111)
The established amount for optional use in determining a tax deduction for automobiles instead of deducting depreciation and actual operating expenses.
Straight line method:(p111)
A way to figure depreciation for property that ratably deducts the same amount for each year in the recovery period. The rate (in percentage terms) is determined by dividing 1 by the number of years in the recovery period.
Structural components:(p111)
Parts that together form an entire structure, such as a building. The term includes those parts of a building such as walls, partitions, floors, and ceilings, as well as any permanent coverings such as paneling or tiling, windows and doors, and all components of a central air conditioning or heating system including motors, compressors, pipes and ducts. It also includes plumbing fixtures such as sinks, bathtubs, electrical wiring and lighting fixtures, and other parts that form the structure.
Tangible property:(p111)
Property you can see or touch, such as buildings, machinery, vehicles, furniture, and equipment.
Not subject to tax.
Term interest:(p111)
A life interest in property, an interest in property for a term of years, or an income interest in a trust. It generally refers to a present or future interest in income from property or the right to use property that terminates or fails upon the lapse of time, the occurrence of an event, or the failure of an event to occur.
Unadjusted basis:(p111)
The basis of an item of property for purposes of figuring gain on a sale without taking into account any depreciation taken in earlier years but with adjustments for other amounts, including amortization, the section 179 deduction, any special depreciation allowance, any deduction claimed for clean-fuel vehicles or clean-fuel vehicle refueling property placed in service before January 1, 2006, and any electric vehicle credit.
Unit-of-production method:(p111)
A way to figure depreciation for certain property. It is determined by estimating the number of units that can be produced before the property is worn out. For example, if it is estimated that a machine will produce 1000 units before its useful life ends, and it actually produces 100 units in a year, the percentage to figure depreciation for that year is 10% of the machine's cost less its salvage value.
Useful life:(p111)
An estimate of how long an item of property can be expected to be usable in trade or business or to produce income.