How Form 4562 Lowers Your Tax Bill
Form 4562 is the IRS form that turns purchases into tax savings. How is that ? It lets you claim depreciation and amortization, make a Section 179 election, and report vehicles and other listed property. If you have new equipment, software, or startup costs, this single filing can shape your future deductions.
Depreciation recovers the cost of machinery, tools, computers and others over time. Amortization spreads certain intangible costs, like startup expenses and goodwill. Under MACRS, the current system, asset classes and recovery periods guide how much you deduct each year.
By using IRS form 4562, you can combine Section 179 expensing with bonus depreciation to speed up deductions. Many filers ask, what is form 4562 in practice? It is the key schedule you attach to your return in any year you claim these write-offs or have listed property. Done right, form 4562 depreciation and amortization can lower taxes starting this year.
What is Form 4562
Form 4562 is the IRS form for depreciation and amortization. allows you claim annual deductions for tangible property like machinery and buildings. You also use it to report the date you placed assets in service and their basis.
It’s important for business and investment property. But it doesn’t cover the energy efficient commercial buildings deduction. For more details, check the official form 4562 instructions.
Filing Form 4562
File IRS form 4562 with your individual or business tax return for any year you’re claiming depreciation, amortization. This includes taking Section 179 deductions. Corporations that claim depreciation generally must file it.
If you claim depreciation on a vehicle or other listed property, you file the form. This is true even if the asset was placed in service in a prior year. You also file when you claim a vehicle deduction on a form other than Schedule C.
At JC Castle Accounting, we make the process simple. We review your assets, identifies which ones qualify for depreciation, and calculates how much you can deduct each year. We also help you maintain complete and organized depreciation records, so you’ll never miss a deduction.
How to Fill Out Form 4562: Practical Steps and a Form 4562 Example
Follow this checklist to turn raw data into a clean filing. You’ll learn to fill out form 4562 step by step. Then, a simple example will show how the parts fit together.
Gathering Data: Basis, in-service dates, method, and class life
Start by listing every asset with its description, the cost, starting service date. Note the recovery period, and method you plan to use. Don’t forget to include any depreciation claimed in previous years so your totals stay accurate.
Maintain a depreciation schedule for each activity, such as a sole proprietorship, partnership, or S corporation. Keep prior-year Forms 4562 so multi-year deductions align and remain audit-ready.
Completing Part I: Electing and allocating Section 179
Enter the cost of eligible Section 179 property and apply the 2024 limit of $1,220,000 with the $3,050,000 phaseout. Observe the business income limitation before finishing your election. Don’t enter listed property here; you will handle that in Part V.
Use a single summary in Part I, then allocate the allowed deduction by activity. This approach makes how to fill out form 4562 easier to track across schedules.
Part II: Applying the special depreciation allowance
Compute the special depreciation allowance after Section 179 and before MACRS. For most 2024 placements, use 60%, with 80% or 60% possible for certain long production period property and aircraft. Confirm the property qualifies and the service date falls within the rules.
This step often drives large first-year write-offs, so confirm the remaining basis you will take to MACRS.
Part III: MACRS conventions and recovery periods
Select the correct asset class, recovery period, and method. Apply the right convention: half-year is common, mid-quarter may apply for heavy fourth-quarter purchases, and mid-month governs real property. Calculate first-year and later-year depreciation on the basis left after Section 179 and bonus.
Remember that ACRS applies only to pre-1987 property. For most taxpayers, MACRS drives form 4562 depreciation and amortization going forward.
Part V: Vehicle mileage logs and listed property details
List each vehicle or other listed property with business-use percentage, miles, and any Section 179 or bonus claimed. Keep a timely mileage log showing date, destination, purpose, and miles. Apply passenger auto limits when required, and note when SUVs are treated differently.
Accurate substantiation here supports both your form 4562 example and your final numbers across the return.
Part VI: Amortization periods for intangibles
Enter startup costs and intangibles like patents, trademarks, licenses, copyrights, and leaseholds. Choose the proper amortization period and use a straight-line approach unless rules say differently. Carry each item forward year to year until fully amortized.
This is where form 4562 depreciation and amortization meet: tangible assets flow through MACRS, while intangibles follow fixed schedules.
Below is a compact form 4562 example that shows the order of operations and how numbers flow from one part to another.
| Item | Data Entered | Rule Applied | Result |
|---|---|---|---|
| Machine (5-year MACRS) | Basis $50,000; Placed 07/15/2024 | Part I Section 179 elected $20,000; Business income allows full election | Remaining basis $30,000 after Section 179 |
| Special Depreciation Allowance | Qualified property at 60% on $30,000 | Part II after Section 179, before MACRS | $18,000 bonus; MACRS basis now $12,000 |
| MACRS (Half-year) | 5-year, 200% DB, half-year convention | Part III on remaining $12,000 | Year 1 MACRS $2,400 (20% of $12,000) |
| Listed Property: SUV | Basis $60,000; 85% business use | Part V with auto limits; Section 179 portion allowed per limits | Eligible costs and limits applied; log retained |
| Trademark (Intangible) | Basis $12,000; Placed 03/01/2024 | Part VI straight-line over 15 years | $800 amortization for 2024 (prorated if needed) |
File the completed form with your federal return for any year you claim Section 179, bonus, MACRS, or amortization. By following these steps, how to fill out form 4562 becomes a repeatable process anchored by a clear form 4562 example and accurate form 4562 depreciation and amortization records.
Form 4562 Instructions: Sections That Drive Tax Savings
Start with clear form 4562 instructions, Map out how to fill out form 4562 to support your deduction strategy. Watch for timing, property type, and how depreciation and amortization work together.
- Section 179 election: Claim up to $1,220,000 in 2024 for eligible assets, limited by business income, with unused amounts carried forward.
- Special depreciation allowance: Take a 60% first-year bonus on qualified property after Section 179 and before MACRS depreciation.
- MACRS depreciation: Calculate yearly write-offs using the correct asset class, method, and convention for faster deductions.
- Listed property: Report vehicles and other mixed-use assets with accurate business-use percentages and documentation.
- Amortization: Deduct startup and intangible costs like goodwill, patents, and licenses using straight-line recovery periods
FAQ
How does Form 4562 lower my tax bill?
Form 4562 lets you deduct the cost of business property over time. This includes using Section 179 and bonus depreciation. By doing this, you reduce your taxable income and improve your cash flow.
What is Form 4562?
IRS Form 4562 is used to claim depreciation and amortization. It also lets you elect Section 179 expensing. You report business or investment use of automobiles and other listed property with it.
What is the purpose of Form 4562: depreciation, amortization, and Section 179?
The form reports and computes your annual cost recovery. It covers MACRS depreciation for tangible property and amortization for intangibles. It also includes a Section 179 election and reporting for listed property.
Who must file Form 4562?
You must file Form 4562 if you claim depreciation, amortization, a Section 179 deduction, or carryover. You also need to file if you have listed property like vehicles. Corporations (except S corporations) and employees claiming vehicle depreciation must file it too.
What records do I need, and how do multiple activities work?
Keep permanent records for each asset, including cost, placed-in-service date, and method. For listed property, maintain detailed logs. If you have multiple businesses, file a separate Form 4562 for each. Complete only one Part I as a summary to compute Section 179 and allocate the deduction on line 12 to each activity.
Where do I find Form 4562 instructions and updates?
The latest form and instructions, including legislative changes, are posted at IRS.gov/Form4562. Check there for current-year limits, percentages, and definitions.
How does Part I handle the Section 179 election and business income limits?
Part I lets you elect to expense qualifying property up to the annual limit. The maximum Section 179 deduction is $1,220,000 in 2024. Estates and trusts cannot elect Section 179. Disallowed amounts carry over.
What is the special depreciation allowance in Part II?
Part II applies bonus depreciation after Section 179 and before MACRS. For most qualified property placed in service in 2024, the allowance is 60%. It generally drops to 40% for most property in 2025, with different percentages for certain long production period property and aircraft.
How does MACRS work in Part III?
MACRS uses asset classes and recovery periods to compute annual depreciation. You select the correct class life, method, and convention. Then, depreciate the remaining basis after Section 179 and bonus.
What is listed property on Form 4562?
Listed property includes passenger automobiles up to 6,000 pounds GVW, other transportation assets, and entertainment-use equipment. These assets face stricter substantiation, limits, and special reporting in Part V.
What are the 2024 Section 179 limits and phaseout?
For tax years beginning in 2024, the maximum Section 179 deduction is $1,220,000. The deduction phases out when total Section 179 property placed in service exceeds $3,050,000. Married filing separately must allocate the dollar limit. Estates and trusts cannot make this election.
How does the business income limitation work and how do I allocate across activities?
Your Section 179 deduction cannot exceed taxable income from the active conduct of trades or businesses. Passive investors don’t count as active for this limit. If you have multiple activities, compute the allowable Section 179 on a single “Summary” Part I and then allocate the deduction to each activity’s Form 4562 line 12.
What are the current bonus depreciation percentages and timeline?
For most qualified property placed in service in 2024, bonus depreciation is 60%. It’s scheduled to drop to 40% for most property placed in 2025. Certain long production period property and aircraft may have different rates. Qualified reuse and recycling property generally has a 50% allowance.
In what order do I apply Section 179, bonus depreciation, and MACRS?
Apply Section 179 first to reduce basis, then the special depreciation allowance, and then MACRS on the remaining basis. This order maximizes deductions while complying with basis rules.
What property qualifies for Section 179 and bonus depreciation?
Section 179 generally covers tangible personal property, off-the-shelf computer software, and certain qualified real property. Exclusions include property used mainly outside the United States, property held for investment, and property used by tax-exempt organizations or governments (with limited exceptions). Bonus depreciation generally applies to most MACRS property with a recovery period of 20 years or less, certain computer software, water utility property, and qualified film, television, or live theatrical productions.
What counts as listed property on Form 4562 and why does it matter?
Listed property covers passenger automobiles (≤6,000 pounds GVW), other transportation assets like SUVs, motorcycles, trucks, and aircraft, and entertainment-use equipment such as cameras and recording devices. These assets face stricter substantiation, limits, and special reporting in Part V.
What are the passenger automobile limits, and how are SUVs treated?
Passenger autos are subject to annual depreciation and expensing caps. SUVs over certain weight thresholds can be treated differently under Section 179 and bonus rules. Check the current-year auto limits and SUV definitions in the IRS instructions to avoid over-claiming.
If I’m an employee, how do I report vehicle expenses?
Employees who can deduct job-related vehicle expenses use Form 2106, Employee Business Expenses, when applicable. If you claim vehicle depreciation and the deduction is reported on a form other than Schedule C, you may also need to file Form 4562.
What data do I need before I fill out Form 4562?
Gather asset descriptions, cost or other basis, placed-in-service dates, class lives and recovery periods, methods and conventions, and prior-year depreciation. Maintain a depreciation schedule for each activity and keep prior Forms 4562 for tracking multi-year deductions.
How do I complete Part I for Section 179?
Enter total cost of Section 179 property, apply the 2024 dollar limit and the phaseout threshold, and compute the business income limitation. Use one “Summary” Part I to determine the allowable amount, then allocate the deduction to each activity’s Form 4562 on line 12. Do not include listed property costs on line 6; report them in Part V.
How do I complete Part II for the special depreciation allowance?
After Section 179, apply the bonus percentage to qualified property placed in service during the year. For most 2024 placements, use 60%. Confirm the property meets qualified definitions and placed-in-service windows before claiming.
How do I complete Part III under MACRS?
Identify the correct asset class and recovery period, choose the appropriate method, and apply the proper convention. Compute first-year and subsequent depreciation on the remaining basis after Section 179 and bonus.
How do I complete Part V for vehicles and other listed property?
List each asset, business-use percentage, and any Section 179 or bonus taken. For vehicles, include total, business, and commuting miles and maintain contemporaneous mileage logs. Apply the passenger auto limitations where required.
How do I complete Part VI for amortization?
Enter each intangible asset with its amortization period, start date, and method. Common items include startup costs, goodwill, licenses, trademarks, patents, copyrights, leasehold interests, and certain software.
What is the Form 4562 filing requirement?
Attach Form 4562 to your individual or business return for any year you claim depreciation, Section 179, bonus depreciation, or amortization, or you must report listed property. File a separate form for each activity, with one consolidated Part I when allocating Section 179 across activities.
Where can I confirm current-year limits for Form 4562?
Always verify the latest limits, percentages, and definitions at IRS.gov/Form4562 before filing, for Section 179, bonus depreciation, and passenger automobile caps.
