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Listed Property Rules

To avoid the abuse of depreciation deductions for mixed-use property congress enacted the "listed property rules." The listed property rules require taxpayers to adequately substantiate the extent of an asset's business use. If listed property is not predominantly used in a trade or business, the business portion of the asset must be depreciated under the Alternative Depreciation System (ADS).

Listed property is any of the following:

1. Any passenger automobile
2. Any other property used for transportation. This includes trucks, buses, boats, airplanes, motorcycles, and any other vehicles for transporting persons and goods.
3. Any property of a type generally used for entertainment, recreation, or amusement (including photographic, phonographic, communication, and video recording equipment.
4. Any computer and related peripheral equipment unless it is used only at a regular business establishment and owned or leased by the person operating the establishment. A regular business establishment includes a portion of a dwelling unit if that portion is used both regularly and exclusively for business.
5. Any cellular telephone or similar telecommunication equipment.

Predominant Use Test:

If more than 50% of an assets total use for each year of its tax life is related to your trade or business, the asset is considered to be predominantly used in a trade or business and is treated the same as any other business asset.

If listed property is used less than 50% in your trade or business, the asset is not considered predominantly used in a trade or business, and depreciation and deductions are limited. The Section 179 expense election does not apply to the asset, and the annual depreciation deduction must be calculated using the Alternative Depreciation System (ADS).

You must allocate the use of any item of listed property used for more than one purpose during the year among its various uses. You cannot use the percentage of investment use of listed property as part of the percentage of qualified business use to meet the predominant use test. However, you do use the combined total of business and investment use to figure your depreciation deduction for the property.

Applying the Predominant Use Test:

You must apply the predominant use test for an item of listed property each year of the recovery period. If, in a year after you place an item of listed property in service, you fail to meet the predominant use test for that item of property, you may be required to recapture part of any Section 179 and depreciation deductions that you claimed in an earlier year.

Beginning with the year you no longer use the property predominantly in a qualified business use you must determine the depreciation using the straight line method over the ADS recovery period.

Record Keeping:

Listed property requires you to maintain detailed records of an assets use. To substantiate deductions you must be able to prove the:

Amount of each expenditure related to the property, such as the cost of the property, repairs, insurance, and other expenses.

Use of the asset, including documentation of the amount of business, investment and other use of the asset.

Date of the expenditure or use of the asset.

Business purpose for the expenditure or the use of the asset.

Form more information on listed property and other depreciation topics please refer to IRS Publication 946.