 How much can you deduct? Let's get down to the nitty and the gritty. Figure the special depreciation allowance by multiplying the depreciable bases of qualified reuse and recyclable property, certain qualified property acquired after September 27, 2017, and certain plant-bearing fruits and nuts by the applicable percentage. For qualified property other than listed property, enter the special depreciation allowance on form 4562 that we've seen in prior presentations, part two, line 14. For a qualified property that is listed property, enter the special depreciation allowance on form 4562, part five, line 25. Tip, if you place qualified property in service in a short tax year, you can take the full amount of a special depreciation allowance. Depreciable basis, this is the, so now we're talking about the depreciable basis, kind of like the adjusted cost, right? This is the property's cost or other basis multiplied by the percentage of business investment use. So the cost of whatever you're putting in place, you're not expensing it, you're putting it on the books as an asset to be depreciated, but now you wanna apply the special depreciation. If you had a partial personal use versus business use, you would think you would have to then multiply it by the percent of business use to adjust the basis to whatever is business. In other words, if it was 80% business use, you would think you have to multiply it times 80% to get the basis, right? So basis investment use reduced by the total amount of any credits and deductions allocable to the property. The following are examples of some credits and deductions that reduce depreciable basis. So you got any section 179 deduction. So if you took a 179 deduction, which is another kind of upfront type of deduction, that's gonna be an adjustment to the basis that then might be applicable then if you're also doing the special. So any deduction for removal or barriers to the disabled and the elderly, any disabled access credit enhanced oil recovery credit or credit for employer provided childcare facilities and services, basis adjustment to investment credit property under section 50C of the Internal Revenue Code, section 181 expense deduction. For additional credits and deductions that affect basis, see sections 1016 of the Internal Revenue Code for information about how to elect the cost or other basis of property. See what is the basis of your depreciable property in chapter one for a discussion of business. There's another link that you can take a look at here. But in any case, that is at depreciating the remaining cost. So after you take the special depreciation upfront, then you may have basis leftover then that you might need to be depreciating in a normal kind of basis then going forward. So after you figure your special depreciation allowance for your qualified property, you can use the remaining cost to figure your regular makers. That's gonna be the normal depreciation methods often time we'll talk about later. Depreciation deduction discussed in chapter four. So therefore, you must reduce the depreciable basis of the property by the special depreciation allowance before figuring your regular makers depreciation deduction. So, which would make sense, so because you got this depreciable property, you put it on the books as an asset, you're gonna depreciate it over the useful life, but instead of using straight line depreciation, you use makers, which is usually a form of double declining balance. But then you might have these upfront kind of deductions you get upfront, like the special depreciation or the 179 depreciation, which might completely allow you to take the full amount upfront of the cost, just like if you would have just been allowed to expense it without doing this whole capitalization thing in the first place. But if you don't get the full amount upfront, then you would take the remaining basis that you didn't get to write off upfront and allocate it according to the normal depreciation rules of makers usually. So once again, therefore, you must reduce the depreciable basis of the property by the special depreciation allowance before figuring your regular makers depreciation deduction. Example, on July 1st, 2022, you place in service in your business qualified property that costs $450,000 and that you acquired after September 27, 2017, you did not elect to claim a section 179 deduction. So we're not gonna muddy up the waters with the 179. So you deduct 100% of the cost, $450,000 as special depreciation allowance for 2022. You have no remaining cost to figure a regular makers depreciation deduction for your property for 2022 and later years. So that's a typical case in these cases for small businesses and that the special depreciation completely wiped out the whole amount just like you would have been able to just expense it in the first place without having to go through this business of putting it on the books as an asset in the first place, right? Like kind exchanges and inventory conversion. So if you acquired qualified property in a like kind exchange or involuntary conversion, so like kind of exchange you're often dealing with real estate which is a life kind of exchange involuntary conversion, possibly the company says we're for a road here. So you're out here, we'll pay you some money for that, right? So or involuntary conversion, after September 27, 2017 and the qualified property is new property that carryover basis and any excess basis of the acquired property is eligible for the special depreciation allowance. If you acquired qualified property in a like kind exchange or involuntary conversion after September 27, 2017 and the qualified property is used property, only the excess basis of the acquired property is eligible for the special depreciation allowance. After you figure your special depreciation allowance, you can use the remaining carryover basis to figure your regular makers depreciation deduction. So somewhat of a more unusual situation although they do come up fairly often, you can see figuring the deduction for property acquired in non-taxable exchange in chapter four under how to depreciate deduction figured. So how can you elect not to claim an allowance? So you might say, what if I don't wanna claim the allowance? So you can elect for any class of property not to deduct any special depreciation allowance for all property in such class placed in service during the tax year. So why would you want to do that? Because again, you might have a situation where your taxes are lower this year possibly cause you have left income putting you into a lower tax bracket than you think might happen in following years. So you'd rather not take the big deduction this year and possibly spread it out over the future years where maybe you have higher tax brackets you are expecting to make an election, attach a statement to your return indicating what election you are making and the class of property for which you are making the election tax software helps with this process. The election must be made separately by each person owning qualified property, for example by the partnership by the S corporation or for each member of a consolidated group by the common parent of the group.