IRS Form 4562 – In the world of business taxes, managing asset costs effectively can significantly impact your bottom line. IRS Form 4562, titled “Depreciation and Amortization (Including Information on Listed Property),” is a crucial tool for taxpayers looking to deduct the gradual wear and tear of business assets over time. Whether you’re a small business owner, a freelancer, or managing a larger enterprise, understanding this form helps you claim deductions for depreciation, make elections under Section 179, and report on listed property like vehicles. This comprehensive guide breaks down everything you need to know about Form 4562, including its purpose, who must file it, how to complete it, and recent updates for tax year 2025 (filed in 2026).
What Is IRS Form 4562 and Why Is It Important?
Form 4562 allows taxpayers to recover the cost of business or investment property through annual deductions. Depreciation accounts for the decline in value of tangible assets like machinery, buildings, or equipment due to use and age. Amortization, similar to straight-line depreciation, applies to intangible assets such as patents, copyrights, or software, spreading their cost over a fixed period. This form is essential because it enables businesses to reduce taxable income by deducting these costs rather than expensing the full amount in one year, which could otherwise lead to higher taxes.
Key uses of Form 4562 include:
- Claiming depreciation deductions for property placed in service during the tax year.
- Electing to expense qualifying property under Section 179.
- Reporting special depreciation allowances (like bonus depreciation).
- Providing details on listed property, which includes items prone to personal use, such as automobiles or computers.
Without properly filing this form, you risk missing out on substantial tax savings or facing IRS scrutiny for unsubstantiated deductions.
Who Must File IRS Form 4562?
Not every taxpayer needs to file Form 4562 annually. You must submit it if you’re claiming:
- Depreciation for assets placed in service in the current tax year (2025).
- A Section 179 expense deduction, including carryovers from prior years.
- Depreciation on vehicles or other listed property, regardless of the placement year.
- Any vehicle deduction reported outside Schedule C (Form 1040).
- Depreciation on a corporate return (excluding Form 1120-S).
- Amortization starting in the current tax year.
File a separate form for each business activity. Employees claiming job-related vehicle expenses use Form 2106 instead. If you’re only continuing amortization from prior years without new triggers, you may report it directly on your return without Form 4562.
File with your original tax return or an amended one within the prescribed time. Elections like Section 179 must be on a timely filed return, including extensions.
Breaking Down the Key Parts of Form 4562
Form 4562 is divided into six parts, each handling specific aspects of deductions. Here’s a detailed overview based on the 2025 form structure.
Part I: Election to Expense Certain Property Under Section 179
This section lets you expense (deduct immediately) the cost of qualifying tangible personal property, like equipment or software, up to certain limits. For 2025:
- Maximum deduction: $1,220,000 (adjusted for inflation).
- Threshold for phase-out: $3,050,000.
- SUV limit: $30,500.
List property descriptions, costs, and elected amounts. Carryovers from 2024 go on line 10. The deduction is limited by business income. Recapture applies if business use drops below 50%.
Part II: Special Depreciation Allowance and Other Depreciation
Claim bonus depreciation here for qualified property (e.g., MACRS assets with a recovery period of 20 years or less). For property placed in service in 2025: 40% allowance (60% for long-production-period property or aircraft). Elect out if needed; it’s irrevocable. Line 15 covers non-MACRS methods, like unit-of-production.
Part III: MACRS Depreciation
The Modified Accelerated Cost Recovery System (MACRS) is the primary depreciation method. It includes:
- Section A: Prior-year assets (line 17) and general asset account elections (line 18).
- Section B: Assets under General Depreciation System (GDS), with columns for classification (e.g., 5-year for computers), basis, recovery period, convention (half-year, mid-quarter, mid-month), method (e.g., 200% declining balance), and deduction.
- Section C: Alternative Depreciation System (ADS) for certain assets, like those used abroad.
Use IRS tables for percentages. For example, 5-year property under half-year convention: Year 1 = 20%.
| Property Class | Recovery Period | Examples | Depreciation Method |
|---|---|---|---|
| 3-Year | 3 years | Race horses >2 years old | 200% DB |
| 5-Year | 5 years | Automobiles, computers | 200% DB |
| 7-Year | 7 years | Office furniture | 200% DB |
| 27.5-Year | 27.5 years | Residential rental property | Straight-line |
| 39-Year | 39 years | Nonresidential real property | Straight-line |
Part IV: Summary
Totals from previous parts go here. Line 22 sums all deductions (excluding Section 179 for partnerships/S corps).
Part V: Listed Property
Listed property (e.g., passenger autos under 6,000 lbs, aircraft) requires detailed reporting due to potential personal use. Sections include:
- Depreciation for >50% business use (line 26) vs. ≤50% (line 27, using ADS).
- Vehicle mileage and use questions (Section B).
- Employer policies (Section C).
Auto depreciation caps for 2025: $12,400 first-year without bonus; $20,400 with. >50% business use is required for full benefits; otherwise, recapture applies.
Part VI: Amortization
Amortize intangible costs over fixed periods:
- Line 42: New amortizations (e.g., Section 197 intangibles over 15 years, R&E over 5-15 years).
- Columns: Description, start date, amount, code section, period, yearly amortization.
Examples: Goodwill ($100,000) amortizes at $6,666.67/year over 15 years. Total on line 44.
How to Fill Out IRS Form 4562 Step-by-Step?
- Gather Information: Collect asset details, including cost, placement date, business use percentage, and prior deductions.
- Complete Part V First (if applicable): For listed property.
- Part I: Calculate Section 179 election, considering limits and income.
- Part II-III: Apply special allowances and MACRS, reducing basis for prior deductions.
- Part VI: List amortizable items.
- Summarize in Part IV: Transfer totals to your main return (e.g., Schedule C).
- Attach Statements: For elections or additional details.
Use software like TurboTax for accuracy, and consult Pub. 946 for guidance.
Recent Updates and Limits for Tax Years 2025-2026
For 2025:
- Section 179 max: $1,220,000; phase-out at $3,050,000.
- Bonus depreciation: 40% (phase-down from 60% in 2024).
- ADS for residential rental: 30 years post-2017.
- Section 174 R&E: Amortization over 5 years (domestic) or 15 years (foreign) for post-2021 costs.
A correction was issued December 4, 2024, for prior years’ line 5. Stay updated via IRS.gov, as limits adjust annually for inflation.
Common Mistakes to Avoid When Filing Form 4562
- Misclassifying Property: Ensure correct recovery periods and methods.
- Forgetting Basis Reductions: Subtract Section 179 or bonus before MACRS.
- Inadequate Records: Listed property needs substantiation (e.g., mileage logs).
- Missing Elections: Attach statements for opts like straight-line or bonus opt-out.
- Double-Dipping: Don’t claim depreciation on amortized assets.
Double-check calculations to avoid audits.
Frequently Asked Questions About IRS Form 4562
Can land be depreciated on Form 4562?
No, land doesn’t depreciate as it doesn’t wear out.
What’s the difference between depreciation and amortization?
Depreciation is for tangible assets; amortization for intangibles.
Do I need to file if I have no new assets?
Only if claiming new deductions or for listed property.
How does bonus depreciation work in 2026?
It drops to 20% for most property placed in service in 2026.
By mastering Form 4562, you can optimize your tax strategy and ensure compliance. For personalized advice, consult a tax professional. Download the form and instructions from IRS.gov to get started.