 Income tax 2022-2023 makers depreciation additional rules for listed property let's do some wealth preservation with some tax preparation. Most of this information comes from publication 946 how to depreciate property tax year 2022 you can find on the IRS website IRS.gov IRS.gov looking at the income tax formula we're focused online one income remember in the first half of the income tax formula is in essence an income statement but just an outline other forms and schedules flowing into these line items one of those the schedule C which has business income minus business expenses the net business income from the schedule C flowing into line one income of the income tax formula we're looking at the page one of the form 1040 remembering that the schedule C flows into the schedule one which flows into line eight page one form 1040 we see here the schedule C is the profit or loss from business in essence an income statement income minus expense sections we are focused on the expenses here more specifically we're focused on depreciation type of items remembering that even if using a cashed based system you're going to have to deviate from that often times for depreciable property putting the item on the books as an asset support accounting instruction by clicking the link below giving you a free month membership to all of the content on our website broken out by category further broken out by course each course then organized in a logical reasonable fashion making it much more easy to find what you need then can be done on a youtube page we also include added resources such as excel practice problems pdf files and more like quickbooks backup files when applicable so once again click the link below for a free month membership to our website and all the content on it 18 it over the useful life in accordance with the tax code so now we're going to go into the special rules for additional rules for listed property introduction this chapter discusses the deduction limits and other special rules that apply for certain listed property listed property includes cars probably the big one there and other property used for transportation properties for entertainment and certain computers so deductions for listed property other than certain least property are subject to the following special rules and limits now one way to think about this is you might think well cars why would there be a special rule for these items and some of these like entertainment for example and the general idea may be that they're concerned that you might be purchasing a very expensive car more than might be needed for the business use purposes and therefore it would seem that the value of the car part of it might be applied to personal use or something like that so you might think that the more restrictive rules are based on that kind of concept so for example if you were if you were just driving commuting miles to go to visit clients or something like that and you're doing so in a $200,000 car then you would expect that the car is overpriced for just the need of getting from point A to point B and if you were to allow it to get some of these the added accelerated depreciations upfront and the current year that would be even more kind of maybe abusive they would they could think about with those kind of things so you have these more restrictions in any case that's what happens so deduction for employees so if your use of the property is not for your employer's convenience or is not required as a condition of your employment you cannot deduct depreciation or rent expense for your use of the property as an employee so that's kind of the the general the general rule as the case that if you are an employee then the employer is usually the one that's thought that's going to be taking care of the expenses for the employee so business use requirements so if the property is not used predominantly more than 50% for qualified business use you cannot claim the section 179 deduction or a special depreciation allowance those are the two big added depreciations basically often allowing you to take the full depreciation you know or the full expense in the year you put the asset on the books and the first place and again because of the nature of these items you can see why they might be skeptical skeptical air five full of someone taking that those big depreciations in year one of the property so obviously if it's so once again if the property is not used predominantly that's more than 50% for qualified business use you cannot claim the section 179 deduction or the special depreciation allowance in addition you must figure any depreciation deduction under makers using the straight line method over the ads recovery period so note that usually you would think that this kind of property given the category in the life of the property might be using the gds and using the double declining method but they're restricting that to the straight line ads recovery so you may also have a recapture include an income income any excess depreciation claimed in previous years a similar inclusion amount applies to certain least property so passenger automobile limit and rules annual limits apply to depreciation deductions including the 179 deduction and any special depreciation allowance for certain passenger automobiles you can continue to deduct depreciation for the unrecovered basis resulting from these limits after the end of the recovery period okay so this chapter defines listed property and explains the special rules and depreciation deduction limits that apply including special inclusion amount rule for least property so it also discusses the record keeping rules for listed property and explains how to report information about the property on your tax return useful items you may want to see so you have other publications you could dive into for more information 463 that's the travel gift and car expenses which kind of dovetails on this item here you've got publication 535 business expenses which obviously dovetails here we're talking about depreciation for listed property and publication 587 business use of your home forms and instructions you may want to look at you've got the form 2106 employee business expenses the form 4562 depreciation and amortization and form 4797 sales of business property that you can check out for more research if you so choose look at the instructions for those forms as well all right so what is listed property listed property is any of the following passenger automobiles defined later any other property used for transportation unless it is an accepted vehicle and property generally used for entertainment recreation or amusement including photographic phonographic communication and video recording equipment so you can imagine that certain industries by the way are more likely to be using some of these items and and then you've got these questions in terms of you know was it business and personal use which gets a little bit more difficult when you're dealing in a business that seems a little bit more fun in nature but in any case improvements to listed property and improvement made to listed property that must be capitalized is treated as a new item of depreciable property similar fashion to improvements we've seen before it's an improvement it's increasing the life of the property or something like that then you'd have to put it on the books as an asset as opposed to expensing it and record it as an improvement a separate item so the recovery period and method of depreciation that applies to the listed property as a whole also apply to the improvement the improvement then follows in alignment with the general rules of the property that it's improving so for example if you must depreciate the listed property using the straight line method you must also depreciate the improvement using the straight line method passenger automobiles what are those that passenger automobile is any four wheel vehicle made primarily for use on public streets roads and highways and rated at 6000 pounds or less of unloaded gross vehicle weight 6000 pounds or less of gross vehicle weight for trucks and vans so you've got this 6000 kind of a pound limit now this became kind of an issue because the idea would be well it would be passenger if it was lighter than that and if it was over 6000 pounds that it would be more like on the machinery type of things like a work truck type of things but then they they got into some areas where where they were you might you might try to hit that 6000 pound limit on certain suv's or something which actually incentivized people to buy heavier automobiles which is not at all what the tax code wanted to happen so that became kind of a the weight limit became kind of a messy thing so it includes any part component or other item physically attached to the automobile at the time of purchase or usually included in the purchase price of an automobile the following vehicles are not considered passenger automobiles for this purpose so an ambulance uh hairs and uh combination ambulance hearse and used directly in a trade or business you got a vehicle used directly in the trade or business of transport transporting persons or property for pay or hire and a truck or van that is a qualified non-personal use vehicle so qualified non-personal use vehicle so notice what you would kind of like then if you're if you're trying to deduct as much as possible that then the idea would be if it's if it's going to be included as a passenger automobile that's likely to limit the amount of depreciation that you could deduct deduct at least on the earlier years you'd like to deduct more on the earlier years if you can therefore you would like to not be classified as a passenger vehicle if possible but rather as a work a work vehicle of some kind because then you're likely to have more favorable depreciation methods that's the general idea that you want to kind of have in your head when you're thinking through these rules so qualified non-personal use vehicles so this would be good usually if you can qualify for non-personal because then you might have more favorable depreciation methods depreciating more upfront so qualified non-personal use vehicles are vehicles that buy that buy their nature are not likely to be used more than a minimal amount for personal purposes they include the trucks and vans listed as expect as uh accepted vehicles under other property used for transportation so it's not likely to be a personal item if your people are driving around their work van it's not a drag it's some kind of thing some are driving like a you know 100 000 sedan or something around around you know it's not like you know so they also include trucks and vans that have been especially modified so that they are not likely to be used more than a minimal minimal amount for personal purposes such as installation of permanent shelving and painting the vehicle to display advertising or the company's name so so that is you know that that kind of obviously deteriorates the value for just personal use although you could still use it for personal use but it's not like the same kind of thing of having a really expensive you know just personal car that you happen to be driving around for business stuff so for a detailed discussion of passenger automobiles including least passenger automobile c publication 563 if you want to dive into this in more detail other property used for transportation other property used for transportation includes trucks buses boats airplanes motorcycles and any other vehicle used to transport persons or goods so caution although vehicles so notice that if it's for transportation like a bus a truck that's used for transporting then again you would think that they're not using that for personal use and therefore might not have the same kind of restrictions you would have on like a a sedan a passenger vehicle that you would think would be used for personal use so caution although vehicles used to transport persons or property for pay or hire and vehicles rated at more than six thousand pound threshold are not passenger automobiles they are still quote other property used for transportation end quote and are subject to the special rules for listed property so once again they're trying to pick up that six thousand pound thing and still say it could be listed property so you got to be careful with it being still listed property again so although vehicles used used to transport persons or property for pay or hire and vehicles rated at more than six more than the six thousand pound threshold are not passenger automobiles they are still other property listed for transportation and are subject to the special rules for listed property so they are subject to the rules so accepted vehicles other property used for transportation does not include the following qualified non-personal and used vehicles defined earlier under passenger automobiles you got the clearly marked police and fire vehicles you've got the unmarked vehicles used by law enforcement officers if the use is officially authorized you've got ambulances used as such and hers is used as such you would think that these would be vehicles that would be used in the you know for work generally any vehicle with a loaded gross vehicle weight of over fourteen thousand pounds that is designed to carry cargo now we're getting quite heavy a bucket trucks cherry pickers cement mixers dump trucks including garbage trucks flatbed trucks and refrigerator trucks so those were clearly work-related items you would think combines cranes derricks and forklifts delivery trucks with seating only for driver or only for the driver plus a full a folding jump seat so qualified moving vans qualified specialized utility repair trucks school buses used in transportation students and employees of schools other buses with a capacity of at least twenty passengers that are used as passenger buses tractors and other special purpose farm vehicles so clearly marked police and fire vehicles a clearly marked police or fire vehicle is a vehicle that meets all the following requirements it is owned or leased by a government unit or an agency or instrumentally of a governmental unit it is it is required to be used for commuting by a police officer or firefighter who when not on regular shift is on coal at all times it is prohibited for being used for personal use other than commuting outside the limit of the police officers arrest powers or the firefighters obligation to respond to an emergency and it is clearly marked with a painting insignia or words that make it readily apparent that it is a police or fire vehicle a marking on a license plate is not a clear marking for these purposes all right we got the qualified moving van a qualified moving van is any truck or van used by a professional moving company for moving household or business goods if the following requirements are met no personal use of the van is allowed other than the travel to and from a move site or the minor personal use such as a stop for lunch on the way from from one move site to another personal use for the travel to and from a move site happens no more than five times a month on average personal use is limited to situations in which it is more convenient to the employer because of the location of the employee's residence in relation to the location of the move site for the van not to be returned to the employer's business location so it's not a commuting type of vehicle in other words it's a general idea because it's it's it's that's not its general purpose it's for moving stuff so qualified special utility repair truck so this is another common one fairly common depending on some industries a truck is a qualified special utility repair truck if it is not a van or pickup truck and all the following apply the truck was specifically designed for and is used to carry heavy tools testing shells or other permanent interior construction has been installed to carry and store the tools equipment or parts and would make it unlikely that the truck would be used other than minimally for personal purposes so the employer requires the employee to drive the truck home in order to be able to respond in emergency situations for purposes of restoring or maintaining electricity gas telephone water sewer or steam utility services