How to Fill Out Form 4562 for Depreciation and Amortization

Form 4562 is used to claim depreciation and amortization deductions on business assets, helping taxpayers recover costs over time. Properly completing this form ensures businesses maximize tax benefits while complying with IRS rules. Understanding how to fill it out correctly requires attention to placed-in-service dates, Section 179 deductions, and bonus depreciation.

Depreciable Property Categories

The IRS classifies depreciable property based on its nature and expected useful life, determining the depreciation method and recovery period. Tangible property, including machinery, vehicles, and buildings, is a common category. Office furniture typically falls under the seven-year property class, while commercial buildings are depreciated over 39 years using the straight-line method.

Residential rental property follows a 27.5-year recovery period under the Modified Accelerated Cost Recovery System (MACRS). Land itself is not depreciable, but improvements such as parking lots, fences, and landscaping may qualify under the 15-year property class.

Listed property, which includes assets used for both business and personal purposes—such as cars and computers—must meet strict usage requirements to be fully depreciated. If business use falls below 50%, depreciation must be calculated using the Alternative Depreciation System (ADS), which generally results in a longer recovery period.

Recording Placed-in-Service Dates

The placed-in-service date marks when an asset is ready and available for use in a business, determining when depreciation begins. This date is not necessarily when the asset was purchased but when it is installed, operational, and actively used. For example, if a company buys manufacturing equipment in December but does not install and use it until February, depreciation starts in the following tax year.

MACRS requires businesses to use specific conventions for first-year depreciation. The half-year convention is the default, treating assets as if they were placed in service at the midpoint of the year. However, if more than 40% of total depreciable property is placed in service during the last three months of the tax year, the mid-quarter convention applies.

Real property, such as commercial buildings or rental properties, follows a different rule, using the month the asset is placed in service rather than a fixed convention. If a business completes construction on a new office building in September and begins using it immediately, depreciation starts in that month.

Section 179 Deduction Requirements

Small businesses often use the Section 179 deduction to immediately expense qualifying asset purchases instead of spreading the deduction over multiple years. For 2024, the maximum deduction is $1.22 million, with a phase-out threshold beginning at $3.05 million. Once spending exceeds this cap, the deduction is reduced dollar-for-dollar.

To qualify, property must be used for business purposes more than 50% of the time and placed in service during the tax year. Eligible assets include tangible personal property such as machinery, office equipment, and certain vehicles, as well as improvements to nonresidential buildings—such as HVAC systems, security systems, and fire alarms.

Passenger vehicles used for business purposes face additional limitations due to luxury auto depreciation caps, with a maximum first-year deduction of $20,200 for 2024 if bonus depreciation is not applied. These restrictions prevent excessive write-offs on high-cost personal-use vehicles while still providing tax relief for work-related transportation.

Real estate generally does not qualify, but specific leasehold, retail, and restaurant improvements may be eligible under Section 179 if they meet IRS guidelines. Additionally, off-the-shelf software that is not custom-developed can also be expensed under this provision. Businesses must elect this deduction on their tax return by filing Form 4562; otherwise, the asset defaults to standard depreciation methods. This flexibility allows companies to optimize deductions based on profitability, as claiming too large an expense in a low-income year could waste potential tax benefits that might be more useful in future periods.

Bonus Depreciation Criteria

Bonus depreciation allows businesses to take a substantial upfront deduction in the year an asset is placed in service. Under the Tax Cuts and Jobs Act (TCJA), bonus depreciation was 100% for assets acquired and placed in service between September 27, 2017, and December 31, 2022. However, this provision began phasing down in 2023, reducing to 80%, with further annual decreases of 20% until it is eliminated by 2027 unless Congress intervenes. For tax year 2024, the allowable bonus depreciation rate is 60%.

To qualify, property must have a MACRS recovery period of 20 years or less, meaning assets like manufacturing equipment, heavy machinery, and qualified improvement property (QIP) are eligible. QIP refers to interior non-structural improvements to nonresidential buildings. Due to a drafting error in the TCJA, QIP was initially ineligible for bonus depreciation, but the CARES Act of 2020 corrected this, retroactively classifying it as 15-year property.

Amortization of Certain Intangible Assets

Depreciation applies to tangible assets, while amortization spreads the cost of intangible assets over their useful life. Businesses that acquire intellectual property, goodwill, or other non-physical assets must follow IRS guidelines to determine the appropriate amortization period and method. Unlike most tangible assets, which use MACRS, intangible assets are typically amortized using the straight-line method over a fixed number of years.

Section 197 of the Internal Revenue Code requires most acquired intangibles to be amortized over 15 years, regardless of their actual lifespan. This includes patents, trademarks, customer lists, and franchise agreements. Goodwill, which arises from business acquisitions, must also be amortized over 15 years, even if its value fluctuates over time. However, internally developed intangibles, such as self-created patents or trademarks, are not eligible for amortization unless acquired from another entity.

Certain intangibles follow different rules. Research and development (R&D) costs must be amortized over five years under the TCJA for tax years beginning after 2021. This change significantly impacts businesses that previously deducted R&D expenses in the year incurred. Additionally, leasehold interests and certain software costs may qualify for different amortization schedules, depending on whether they are classified as capital expenditures or operating expenses. Proper classification is essential for maximizing deductions and ensuring compliance with IRS regulations.

Submitting the Completed Form

Once all depreciation and amortization calculations are finalized, Form 4562 must be accurately completed and submitted with the business’s tax return. Each section corresponds to specific types of deductions, requiring careful attention to ensure all eligible expenses are properly reported.

Part I covers the Section 179 deduction, where businesses must list qualifying property and ensure total deductions do not exceed taxable income limitations. Part II is used for bonus depreciation, requiring details on eligible assets and the percentage applied. Depreciation for assets using MACRS is reported in Part III, where businesses must specify the applicable convention, recovery period, and method used. Amortization of intangible assets is recorded in Part VI, requiring businesses to list each asset, its start date, and the total amount deducted for the year.