Part II. Special Depreciation — 2025 Inst 4562 (PDF)

Line 14 For qualified property (defined later) placed in service during the tax year, you may be able to take an additional special depreciation allowance. The special depreciation allowance applies only for the first year the property is placed in service. The allowance is an additional deduction you can take after any section 179 expense deduction and before you figure regular depreciation under MACRS.

Qualified property. You can take the special depreciation allowance for certain qualified property acquired after January 19, 2025; certain qualified property acquired after September 27, 2017, and before January 20, 2025; certain plants bearing fruits and nuts planted or grafted after January 19, 2025; certain plants bearing fruits and nuts planted or

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grafted before January 20, 2025; qualified reuse and recycling property; and qualified production property.

Certain qualified property acquired after January 19, 2025. Certain qualified property (defined below) acquired after January 19, 2025, is eligible for a 100% special depreciation allowance. However, you can elect to take a 40% special depreciation allowance for certain qualified property (60% for property with a long production period and certain aircraft), instead of the 100% special depreciation allowance in the first tax year ending after January 19, 2025.

Qualified property is:

Tangible property depreciated under MACRS with a recovery period of 20 years or less;
Computer software defined in and depreciated under section 167(f)(1);
Water utility property (see 25-year property, later); and
Qualified film, television, and live theatrical productions, as defined in sections 181(d) and (e). Qualified sound recording productions, as defined in section 181(f), of which production commenced in tax years ending after July 4, 2025.

Qualified property can be either new property or certain used property.

See Pub. 946 for more information. Also, see section 168(k) as amended by section 70301 and 70434(g) of P.L. 119-21. Certain qualified property acquired after September 27, 2017, and before January 20, 2025. Certain qualified property (defined below) acquired after September 27, 2017, and before January 20, 2025 (other than property with a long production period and certain aircraft), is limited to a special depreciation allowance of 40% of the depreciable basis of the property. Property with a long production period and certain aircraft acquired after September 27, 2017, and before January 20, 2025, is eligible for a special depreciation allowance of 60% of the depreciable basis of the property.

Qualified property is:

Tangible property depreciated under MACRS with a recovery period of 20 years or less;
Computer software defined in and depreciated under section 167(f)(1);
Water utility property (see 25-year property, later); and
Qualified film, television, and live theatrical productions, as defined in sections 181(d) and (e). Qualified sound recording productions, as defined in section 181(f), of which production commenced in tax years ending after July 4, 2025.

Any property planted or grafted outside the United States does not qualify as a specified plant.

If you elect to claim the special depreciation allowance for any specified plant, the special depreciation allowance only applies for the first tax year in which the plant is planted or grafted. The plant will not be treated as qualified property eligible for the special depreciation allowance in the subsequent tax year in which it is placed in service.

To make the election, attach a statement to your timely filed return (including extensions) for the tax year in which you plant or graft the specified plant(s) indicating you are electing to apply section 168(k)(5) and identifying the specified plant(s) for which you are making the election. Once made, the election cannot be revoked without IRS consent. See section 168(k)(5).

Note: For the first tax year ending after January 19, 2025, you can elect to take a 40% special depreciation allowance (instead of 100%) for certain specified plants planted or grafted after January 19, 2025.

Certain plants bearing fruits and nuts planted or grafted before January 20, 2025. You can elect to claim a 40% special depreciation allowance for the adjusted basis of certain specified plants (defined later) bearing fruits and nuts planted or grafted after December 31, 2024, and before January 20, 2025.

A specified plant is:

Any tree or vine that bears fruits or nuts, and
Any other plant that will have more than one yield of fruits or nuts and generally has a pre-productive period of more than 2 years from planting or grafting to the time it begins bearing fruits or nuts.

Any property planted or grafted outside the United States does not qualify as a specified plant.

If you elect to claim the special depreciation allowance for any specified plant, the special depreciation allowance applies only for the tax year in which the plant is planted or grafted. The plant will not be treated as qualified property eligible for the special depreciation allowance in the subsequent tax year in which it is placed in service.

Qualified reuse and recycling property. Certain qualified reuse and recycling property (defined later) placed in service after August 31, 2008, is eligible for a 50% special depreciation allowance.

Qualified reuse and recycling property includes any machinery and equipment (not including buildings or real estate), along with any appurtenance, that is used exclusively to collect, distribute, or recycle qualified reuse and recyclable materials. This includes software necessary to operate such equipment. See section 168(m)(3) for more information.

Qualified reuse and recycling property must also meet all of the following tests.

The property must be depreciated under MACRS.
The property must have a useful life of at least 5 years.
You must have acquired the property by purchase after August 31, 2008. If a binding contract to acquire the property

Qualified property must also be acquired before January 20, 2025, and placed in service before January 1, 2026, and can be either new property or certain used property.

See Pub. 946 for more information. Also, see section 168(k), as in effect before the enactment of section 70301 and 70434(g) of P.L. 119-21, and Regulations sections 1.168(k)-2 and 1.1502-68. Certain plants bearing fruits and nuts planted or grafted after January 19, 2025. You can elect to claim a 100% special depreciation allowance for the adjusted basis of certain specified plants (defined later) bearing fruits and nuts planted or grafted after January 19, 2025.

A specified plant is:

Any tree or vine that bears fruits or nuts, and
Any other plant that will have more than one yield of fruits or nuts and generally has a pre-productive period of more than 2 years from planting or grafting to the time it begins bearing fruits or nuts.

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existed before September 1, 2008, the property does not qualify.

The property must be placed in service after August 31,

The original use of the property must begin with you after August 31, 2008.
For self-constructed property, special rules apply. See section 168(m)(2)(C).

Qualified reuse and recycling property does not include rolling stock or other equipment used to transport reuse and recyclable materials or any property to which section 168(g) or (k) applies.

Exceptions. Qualified property does not include:

Listed property used 50% or less in a qualified business use (as defined in the instructions for lines 26 and 27);
Any property required to be depreciated under the Alternative Depreciation System (ADS) (that is, not property for which you elected to use ADS);
Property placed in service, or planted or grafted, as applicable, and disposed of in the same tax year;
Property converted from business or income-producing use to personal use in the same tax year it is acquired;
Property described in section 168(k)(9)(A) or 168(k)(9)(B); or
Property for which you elected not to claim any special depreciation allowance.

See sections 168(k) and 168(m) for additional information. Also, see Pub. 946.

How to figure the allowance. Figure the special depreciation allowance by multiplying the depreciable basis of the property by the applicable percentage.

For qualified production property (discussed later), figure the special depreciation allowance by designating the amount of the depreciable basis of the eligible property that you wish to treat as qualified production property.

To figure the depreciable basis, subtract from the business/investment portion of the cost or other basis of the property any credits and deductions allocable to the property. The following are examples of some credits and deductions that reduce the depreciable basis.

Section 179 expense deduction.
Deduction for removal of barriers to the disabled and the elderly.
Disabled access credit.
Enhanced oil recovery credit.
Credit for employer-provided childcare facilities and services.
Basis adjustment to investment credit property under section 50(c).
Section 181 expense deduction. For additional credits and deductions that affect the depreciable basis, see section 1016. Also, see Pub. 946.

Note: If you acquired qualified property through a like-kind exchange or involuntary conversion, and the qualified property is new property, the carryover basis and any excess basis of the acquired property is eligible for the special depreciation allowance.

Generally, a like-kind exchange after December 31, 2017, is an exchange of real property.

If you acquired qualified property through a like-kind exchange or involuntary conversion, and the qualified property is used property, only the excess basis of the

acquired property is eligible for the special depreciation allowance.

Caution: If you take the special depreciation allowance, you must reduce the amount on which you figure your regular depreciation or amortization deduction by the amount deducted. Also, you will not have any AMT adjustment for depreciation for the qualified property.

Election out. You can elect, for any class of property, to not deduct any special depreciation allowance for all such property in such class placed in service during the tax year.

To make an election, attach a statement to your timely filed return (including extensions) indicating the class of property for which you are making the election and that, for such class, you are not to claim any special depreciation allowance.

The election must be made separately by each person owning qualified property (for example, by the partnership, by the S corporation, or for each member of a consolidated group by the common parent of the group).

If you timely filed your return without making an election, you can still make the election by filing an amended return within 6 months of the due date of the return (excluding extensions). Enter “Filed pursuant to section 301.9100-2” on the amended return.

Once made, the election cannot be revoked without IRS consent.

Note: If you elect to not have any special depreciation allowance apply, the property placed in service during the tax year will not be subject to an AMT adjustment for depreciation.

Recapture. When you dispose of property for which you claimed a special depreciation allowance, any gain on the disposition is generally recaptured (included in income) as ordinary income up to the amount of the depreciation previously allowed or allowable for the property, including the special depreciation allowance. For more information, see MACRS recapture , later. If qualified GO Zone property (including specified GO Zone property) ceases to be qualified GO Zone property, if qualified Recovery Assistance property ceases to be qualified Recovery Assistance property, if qualified cellulosic biomass ethanol plant property ceases to be qualified cellulosic biomass ethanol plant property, if qualified second generation biofuel plant property ceases to be qualified second generation biofuel plant property, if qualified disaster assistance property ceases to be qualified disaster assistance property, or qualified production property ceases to be qualified production property in any year after the year you claim the special depreciation allowance, the excess benefit you received from claiming the special depreciation allowance must be recaptured as ordinary income. For information on depreciation recapture, see Pub. 946. Also, see Notice 2008-25, 2008-9 I.R.B. 484, available at IRS.gov/irb/ 2008-09_IRB/ar10.html, for additional guidance on recapture of qualified GO Zone property.

Qualified Production Property

You can elect to take a special depreciation allowance for qualified production property (QPP) by designating up to 100% of the depreciable basis of eligible property as QPP.

Your property is eligible property if it is all of the following.

Nonresidential real property.

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Used as an integral part of a qualified production activity (described below).
Constructed beginning after January 19, 2025, and before January 1, 2029.
Placed in service in the United States or a United States territory, after July 4, 2025, and before January 1, 2031.

Eligible property can be either new property or certain used property.

Qualified production activity. A qualified production activity (QPA) is the manufacturing, production, or refining, of a product of tangible personal property, that results in a substantial transformation of the property comprising the product. Additionally, certain activities that do not themselves result in a substantial transformation of the property comprising the product may still be a QPA if they are essential to the quantity or quality of the main activity’s output. If you lease property to someone else that conducts a QPA within it, you generally do not qualify for the special depreciation allowance.

Note: If only a portion of a building is used for a QPA, the depreciable basis of eligible property may be less than the depreciable basis of the overall property (i.e., the depreciable basis of the eligible property you may designate as QPP may be less than the depreciable basis of the building in which the QPA is conducted).

A description of the property and the depreciation method you elect that excludes the property from MACRS or ACRS; and
The depreciable basis (cost or other basis reduced, if applicable, by salvage value, any section 179 expense deduction, deduction for removal of barriers to the disabled and the elderly, disabled access credit, enhanced oil recovery credit, credit for employer-provided childcare facilities and services, any special depreciation allowance, and any other applicable deduction or credit).

For additional credits and deductions that may affect the depreciable basis, see section 1016. Also, see section 50(c) to determine the basis adjustment for investment credit property.

Line 16 Enter the total depreciation you are claiming for the following types of property (except listed property and property subject to a section 168(f)(1) election).

ACRS property (pre-1987 rules). See Pub. 534.
Property placed in service before 1981.
Certain public utility property which does not meet certain normalization requirements.

Excepted property. Eligible property does not include any of the following.

Property placed in service and disposed of in the same tax year, including property converted from business use to personal use in the same tax year the property is placed in service.
Certain property acquired from related persons.
Property acquired in certain nonrecognition transactions.
Certain sound recordings, movies, and videotapes.
Property depreciated under the income forecast method. The use of the income forecast method is limited to motion picture films, videotapes, sound recordings, copyrights, books, and patents.
Property required to be depreciated under the Alternative Depreciation System (ADS).
Ineligible property, which generally includes space used for activities other than a QPA, such as offices, research activities, and storage of finished goods.

How to elect and designate qualified production proper- ty. To make the election and designation, attach a statement to your timely filed return (including extensions) for the tax year in which you place the eligible property in service, containing the information listed in section 7.02 of Notice 2026-16. The election and designation, once made, cannot be revoked except in extraordinary circumstances.

For more information on eligible property and on how to make an election to treat eligible property as QPP, see Notice 2026-16, 2026-11 I.R.B. 685, available at IRS.gov/irb/ 2026-11_IRB#NOT-2026-16 . Also, see section 168(n).

Recapture of allowance for qualified production proper- ty. Note that if, within 10-calendar years of placing QPP in service, you cease using the QPP as an integral part of a QPA and begin using it in another productive use, you will generally recapture the entire allowance as ordinary income, even if you do not dispose of the QPP. For additional guidance, see Notice 2026-16.

Line 15 Report on this line depreciation for property that you elect to depreciate under the unit-of-production method or any other method not based on a term of years (other than the retirement-replacement-betterment method).

Attach a separate sheet showing:

Caution: If you take the special depreciation allowance for a qualified film, television, live theatrical or sound recording production, you must reduce the amount on which you figure your regular depreciation deduction by the amount deducted.

If you use the income forecast method for any property placed in service after September 13, 1995, you may owe interest or be entitled to a refund for the 3rd and 10th tax years beginning after the tax year the property was placed in service. For details, see Form 8866, Interest Computation Under the Look-Back Method for Property Depreciated Under the Income Forecast Method.

For property placed in service in the current tax year, you can either include certain participations and residuals in the adjusted basis of the property or deduct these amounts when paid. See section 167(g)(7). To elect a method for the treatment of participations and residuals, attach a statement to the timely filed return (including extensions) for the tax year the income forecast property is placed in service and provide a description of the property to which the participations and residuals relate, the date the property was placed in service, and how you elect to treat the participations and residuals for that property. You cannot use this method to depreciate any amortizable section 197 intangible. For more details, see the instructions for section 197 intangibles, later.

Intangible property, other than section 197 intangibles, including the following.

Computer software. Use the straight line method over 36 months. A longer period may apply to software leased under a lease agreement entered into after March 12, 2004, to a tax-exempt organization, governmental unit, or foreign person or entity (other than a partnership). See section 167(f) (1)(C).

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Caution: If you elect the section 179 expense deduction or take the special depreciation allowance for qualified computer software, you must reduce the amount on which you figure your regular depreciation deduction by the amount deducted.

Any right to receive tangible property or services under a contract or granted by a governmental unit (not acquired as part of a business).
Any interest in a patent or copyright not acquired as part of a business.
Residential mortgage servicing rights. Use the straight line method over 108 months.
Other intangible assets with a limited useful life that cannot be estimated with reasonable accuracy. Generally, use the straight line method over 15 years. See Regulations section 1.167(a)-3(b) for details and exceptions.

Caution: Prior years’ depreciation, plus current year’s depreciation, can never exceed the depreciable basis of the property.