Form 4562, Depreciation and Amortization (Including Information on Listed Property), is generally completed in Keystone Tax Solutions Pro via the Depreciation Module. The Depreciation Module is accessible from four places in a tax return:
- Schedule C, for a sole proprietorship
- Schedule E, for rental property
- Schedule F, for a farm
- Form 2106 in the Adjustments menu, for employee business expenses
Use of the Depreciation Module to calculate depreciation, Section 179 deduction and bonus depreciation, and the actual vehicle expenses that can be deducted based on mileage, is generally recommended since the module allows for greater flexibility in completing Form 4562, and all of the assets and their depreciation information carry forward to the following year’s tax return. (For more information about using the Depreciation Module in Schedules C, E, and F, click here.)
On the other hand, if you use other software to maintain asset records and calculate depreciation, that information can be entered directly onto Form 4562, bearing in mind several important caveats:
- Any information entered directly onto Form 4562 is deleted if you subsequently select the Depreciation Module;
- Asset information entered directly onto Form 4562 doesn’t carry forward to the following year’s return;
- If there is more than one business producing Form 4562 in the return, individual Forms 4562 will be in View Results as well as a summary;
- The form is limited to two lines for purchases of non-Listed Property Section 179 assets;
- The form is limited to two lines of amortization beginning in the current year;
- Non-vehicle Section 179 assets are not currently supported for direct entry onto Form 4562;
- Listed Property entries in Part V can only be for vehicles using standard mileage rate or deducting lease expense.
IRS Form 4562 instructions and Publication 946 are informative and authoritative and should be referred to when completing the form. The following instructions assume that, for a particular business in the return, the Depreciation Module is not being used.
In Keystone Tax Solutions Pro, to access Form 4562 within Schedules C, E, or F in the tax return (Form 1040) select:
- Expenses
- Depreciation
- Form 4562
To access Form 4562 within Form 2106, from the Main Menu of the tax return (Form 1040) select:
- Adjustments
- Business Expenses of Reservists (2106)
- Other Business Expenses (Not Meals)
- Depreciation / Form 4562
- Form 4562
Section 179 – This menu is for the information in Part I of Form 4562. See the instructions if you are unclear as to what constitutes Section 179 property. Don’t enter Listed Property here.
- Property #1 and #2 – Enter the property description, the cost, and the amount elected to expense.
- Total Cost of Section 179 Property – This line will equal the cost of Section 179 property on Lines 6b plus the cost of Section 179 Listed Property in Part V. For MFS returns, add as an adjustment the cost of Section 179 property placed in service by the spouse.
- Carryover of Disallowed Deduction from [prior year] – Enter the amount from the prior year’s Form 4562 Line 13.
- Qualified Zone Property Limit Adjustment – If the business is a Qualified Empowerment Zonebusiness, the maximum Section 179 expense deduction can be increased by the smaller of $35,000 or the cost of the Section 179 property placed in service within the zone. Enter the adjustment amount on this line, if any.
- Property Cost Threshold – Enter the same adjustment here as in the previous step.
- Taxable Income Limitation – Enter here the smaller of the dollar limitation for the year (Form 4562 Line 5) or the recomputed taxable income for the business per the formula in the Form 4562 instructions.
- Adjust Section 179 Summary Form 4562 – If you have multiple Forms 4562, they will be summarized on one form. Use these lines to adjust the limitations or thresholds, if needed.
20xx MACRS – Enter here the totals for each depreciation classification for assets placed into service during the year. Don’t enter Listed Property here. These entries will carry to Form 4562 Part III Lines 19 and 20.
Auto and Listed Property – Enter here mileage information for vehicles that qualify as Listed Property. The vehicle information will carry to either Line 26 or Line 27 based on the percentage of business use as determined by the mileage entries. Several caveats:
- Form 2106 filers include this information on that form, not here;
- Schedule C filers claiming either standard mileage or actual vehicle expenses (except depreciation), and aren’t filing Form 4562 for any other reason, include this information in Schedule C Part IV, not here.
- Don’t make an entry in the line Special Depreciation for Listed Property.
MACRS Deductions Prior to 20xx – Enter here the total depreciation for assets placed into service in prior years.
Electing to Group Assets Placed in Service During 2019 – If the taxpayer is choosing or has chosen to group assets into General Asset Accounts for the purpose of MACRS calculations, answer YES to the question. This election, once made, applies to all future years and has important recordkeeping requirements, rules, and stipulations. Refer to Publication 946 for information regarding General Asset Accounts.
Property Subject to Section 168(f)(1) – Enter here the amount of depreciation for property that is being depreciated using a method not based on a term of years, e.g., the unit-of-production method (but other than the retirement-replacement-betterment method). Attach to the return a statement providing a description of the property, the depreciation method used, and the basis (cost net of any deductions or credits).
ACRS and/or Other Depreciation – Enter here the amount of depreciation for certain property not entered anywhere else on the form, e.g.,
- Property depreciated under pre-1987 ACRS rules;
- Property placed in service before 1981;
- Certain public utility property that doesn’t meet certain normalization requirements;
- Certain property acquired from related persons;
- Property acquired in certain nonrecognition transactions;
- Certain sound recordings, movies, and videotapes;
- Books, copyrights, motion picture films, patents, sound recordings, and videotapes depreciated under the income forecast method.
Special Depreciation Allowance – Enter here any adjustment to the special depreciation allowance as calculated by the program. See the Form 4562 instructions for Line 14 for more information about the special depreciation allowance.
Section 263A Cost – If the taxpayer is subject to the uniform capitalization rules of section 263A, enter the portion of the basis attributable to section 263A costs. See here for more discussion from the IRS.
Amortization – Amortization involves the recovery of capital costs over a fixed period of time at equal amounts each year. Following are the capital costs that can be amortized along with the code section or other applicable regulation. See the Form 4562 instructions for rules and stipulations for each:
- Optional write-off of certain tax preferences over the period specified in section 59(e);
- Geological and geophysical expenditures (section 167(h));
- Pollution control facilities (section 169);
- Bond premium (section 171);
- Research and experimental expenditures (section 174);
- Cost of acquiring a lease (section 178);
- Qualified forestation and reforestation costs (section 194);
- Business start-up costs (section 195);
- Section 197 intangibles:
- Goodwill;
- Going concern value;
- Workforce in place;
- Business books and records, operating systems, or any other information base;
- A patent, copyright, formula, process, design, pattern, know-how, format, or similar item;
- A customer-based intangible (for example, composition of market or market share);
- A supplier-based intangible;
- A license, permit, or other right granted by a governmental unit;
- A covenant not to compete entered into in connection with the acquisition of a business;
- A franchise, trademark, or trade name (including renewals).
- Organizational costs for a corporation (section 248);
- Organizational costs for a partnership (section 709);
- Creative property costs (Rev. Proc. 2004-36, 2004-24 I.R.B. 1063).
Property #1 and #2 – Enter up to two lines of amortization costs that began in the current tax year. If property is amortized, the part that is amortized cannot also be depreciated or take a Section 179 deduction.
Amortization Costs that Began Before 20xx – Enter the total amortization for capital assets entered in prior years. Note: If this amount is the only entry on Form 4562, don’t report it here. Include it under “Other Expenses”.
Additional Information: