Listed Property

Listed Property: Tax Deductions and Depreciation Rules

What is listed property?
* Listed property is tangible property that can be used for both business and personal purposes (for example, passenger automobiles, many transportation vehicles, and equipment generally used for entertainment, recreation, or amusement).
* The IRS treats these items specially because mixed personal/business use creates potential for misuse of tax deductions. To receive favorable tax treatment, the property must be used more than 50% for business.

Types of listed property
* Passenger automobiles and similar four‑wheeled vehicles (subject to weight and purpose tests).
* Other transportation property that is not an “excepted” or “qualified nonpersonal use” vehicle (exceptions include police and fire vehicles, ambulances, hearses, school buses, moving vans, and certain trucks/tractors).
* Equipment generally used for entertainment, recreation, or amusement (photographic, phonographic, communication, and video recording equipment).
* Note: cell phones and similar personal telecommunications devices are no longer classified as listed property for stricter IRS recordkeeping, though business use is still deductible.

Business‑use requirement
* To qualify for Section 179 deductions, accelerated depreciation, or bonus depreciation, listed property must be used more than 50% for business. “More than 50%” is measured by time, mileage, hours of use, or other appropriate metrics.
* If business use is 50% or less, the property is treated under less favorable rules (e.g., Alternative Depreciation System) and generally must be depreciated using straight‑line methods.

Deductions and depreciation options
* Section 179: Allows immediate expensing of qualifying property in the year placed in service — but only if the property meets the business‑use test. Section 179 is subject to annual dollar limits and cannot exceed taxable business income. Remaining basis after a Section 179 deduction may still be depreciated.
* Bonus depreciation: A separate first‑year allowance may be available for qualified property placed in service during specified periods. Rules and percentages have changed in recent years, so check current law for applicability.
* General Depreciation System (GDS): If business use exceeds 50%, GDS can allow accelerated depreciation (larger deductions earlier).
* Alternative Depreciation System (ADS): Required when business use is 50% or less; spreads deductions more evenly over a longer recovery period.

Leased property exception
* The >50% business‑use test does not apply to listed property that is leased by taxpayers who are “regularly engaged” in the business of leasing listed property. Occasional or incidental leasing does not qualify.

Calculating and allocating use
* For vehicles and transportation property: determine business‑use percentage by dividing business miles by total miles for the year.
* For other items: use hours (business hours used ÷ total hours used) or another appropriate measure of actual use.
* Only activities that would otherwise be deductible as ordinary and necessary business expenses count as business use.
* Commuting (home-to-work travel) is not business use and is not deductible.

Recordkeeping requirements
* Maintain adequate records to substantiate business use: dates, mileage or hours, purpose of each use, purchase price, repairs, and maintenance.
* Detailed logs (mileage logs, usage schedules, receipts) are essential — inadequate documentation can disallow favorable deductions and trigger adjustments or recapture.

Depreciation recapture
* If you claimed accelerated deductions (including Section 179) and business use later falls to 50% or less during the asset’s recovery period, you may owe recapture. Recapture effectively adds back previously deducted amounts to taxable income to the extent required by the rules.

Employees and listed property
* Employees may claim depreciation for listed property used in performing services only if the use qualifies as business use, is required for the employer’s convenience, and is a condition of employment.
* If an employer permits personal use of employer property, that personal use must generally be reported or otherwise handled according to tax rules.

Practical tips
* Track business use contemporaneously—don’t rely on memory at year‑end.
* Prorate deductions when property is mixed‑use (e.g., 80% business use × cost).
* Check current IRS limits and rules before claiming Section 179 or bonus depreciation; thresholds and percentages change.
* Consult a tax professional if you change the use of property, dispose of it, or face potential recapture.

Bottom line
Listed property requires careful documentation and accurate allocation of business versus personal use. When business use exceeds 50%, taxpayers can access favorable tax treatments (Section 179, accelerated depreciation, and sometimes bonus depreciation). If business use is 50% or less, deductions are more limited and straight‑line methods generally apply. Good records and timely review of current IRS rules are essential to maximize benefits and avoid recapture.

Sources
* Internal Revenue Service, Publication 946: How to Depreciate Property
* IRS Topic No. 704, Depreciation
* Cornell Law School Legal Information Institute, “Listed Property”