Where to Find Depreciation on a Tax Return?

Depreciation is an accounting method for allocating the cost of a tangible asset over its useful life, reflecting its wear and tear or obsolescence. For tax purposes, it is a deduction that reduces a business’s taxable income. Locating the final depreciation figure on a tax return can be confusing, as the total deduction is first calculated on a specific form. It is then transferred to another schedule or return, depending on the type of business activity.

Form 4562 The Source of the Depreciation Figure

The depreciation deduction on a tax return begins with IRS Form 4562, Depreciation and Amortization. This is the primary form where taxpayers calculate the annual depreciation expense for all tangible property, such as machinery, equipment, and buildings. The form is structured into several parts that contribute to the final calculation.

Part I of Form 4562 is for the Section 179 deduction, which allows a business to expense the cost of qualifying property in the year it is placed in service. Part II addresses the Special Depreciation Allowance, or bonus depreciation, which lets businesses deduct a percentage of an asset’s cost in the first year. This benefit is being phased out; for property placed in service in 2025, the bonus depreciation rate is 40%. The rate is scheduled to decrease in subsequent years.

Part III covers the Modified Accelerated Cost Recovery System (MACRS), the standard depreciation system for most tangible property. MACRS assigns assets to classes that determine their depreciable life. The calculations from all parts are combined, and the total depreciation for the year is summarized on line 22. This total is then carried to other tax schedules and forms.

Depreciation on Returns for Sole Proprietors

Individuals operating as a sole proprietor or a single-member LLC report business income and expenses on Schedule C, Profit or Loss from Business. After the total depreciation is calculated on Form 4562, the final figure is transferred to this schedule. This includes depreciation among all other business expenses to determine the net profit or loss.

This expense is located in the “Expenses” section of Schedule C. The total depreciation and Section 179 expense deduction from Form 4562 is entered on Line 13. This amount directly reduces the business’s gross income, lowering the final net profit subject to tax.

If a taxpayer has multiple businesses, a separate Schedule C and a corresponding Form 4562 are required for each one. This ensures depreciation is deducted only against the income of the business that uses the assets.

Depreciation on Returns for Rental Activities

Individuals with rental properties report income and expenses on Schedule E, Supplemental Income and Loss. The depreciation for rental assets is first calculated on Form 4562, and the total is then carried over to Schedule E as an expense against rental income.

The depreciation expense for rental real estate is found in Part I of Schedule E, under “Income or Loss From Rental Real Estate and Royalties.” Within the list of expenses, Line 18 is labeled “Depreciation expense or depletion.” The total from Form 4562 that pertains to the rental asset is entered here to calculate the net income or loss from the activity.

The depreciation on Schedule E pertains only to assets used in the rental activity. If a taxpayer also has a separate business, depreciation will flow from Form 4562 to both Schedule C for the business and Schedule E for the rental, with calculations kept separate for each.

Depreciation on Corporate and Partnership Returns

C corporations, S corporations, and partnerships also use Form 4562 to compute depreciation. For a C corporation filing Form 1120, the total depreciation deduction, including any Section 179 expense, is reported on Line 20.

For pass-through entities, the reporting differs. On a partnership return, Form 1065, the depreciation deduction is on Line 16. For an S corporation filing Form 1120-S, it is on Line 14. For both partnerships and S corporations, the Section 179 deduction is not claimed on the main form but is passed through to partners or shareholders on Schedule K-1.

These entities also provide a balance sheet, Schedule L, which shows accumulated depreciation. Accumulated depreciation is the total amount of depreciation claimed on an asset since it was placed in service, representing the asset’s used-up value over time. On Schedule L, depreciable assets are listed at their original cost, with a line below for “Less accumulated depreciation.” Subtracting this amount from the original cost provides the asset’s net book value.