How Much Can You Deduct?

Terms you may need to know (see Glossary):

Adjusted basis Basis Placed in service

Figure the special depreciation allowance by multiplying the depreciable basis of qualified reuse and recycling property; 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; and certain plants bearing fruits and nuts plant or grafted before January 20, 2025, 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.

For qualified property other than listed property, enter the special depreciation allowance on Form 4562, Part II, line 14. For qualified property that is listed property, enter the special depreciation allowance on Form 4562, Part V, line 25. For qualified production property, report the amount of the special depreciation allowance you are claiming by attaching a statement to your timely filed return for the tax year you place the property in service which includes the information listed in Notice 2026-16, section 7.02.

Publication 946 (2025) Chapter 3 Claiming a Special Depreciation Allowance 25

Tip: If you place qualified property in service in a short tax year, you can take the full amount of a special depreciation allowance.

Depreciable basis. This is the property’s cost or other basis multiplied by the percentage of business/investment use, reduced by the total amount of any credits and deductions allocable to the property.

The following are examples of some credits and deductions that reduce depreciable basis.

• Any section 179 deduction.

• Any deduction for removal of barriers to the disabled and the elderly.

• Any disabled access credit, enhanced oil recovery credit, and credit for employer-provided childcare facilities and services.

• Basis adjustment to investment credit property under section 50(c) of the Internal Revenue Code.

• Section 181 expense deduction.

For additional credits and deductions that affect basis, see section 1016 of the Internal Revenue Code.

For information about how to determine the cost or other basis of property, see What Is the Basis of Your De- preciable Property? in chapter 1. For a discussion of business/investment use, see Partial business or investment use under Property Used in Your Business or Income-Pro- ducing Activity in chapter 1.

Depreciating the remaining cost. After you figure your special depreciation allowance for your qualified property or qualified production property, you can use the remaining cost to figure your regular MACRS depreciation deduction (discussed in chapter 4). Therefore, you must reduce the depreciable basis of the property by the special depreciation allowance before figuring your regular MACRS depreciation deduction.

Example. On January 7, 2025, you placed in service in your business qualified property (that is not long production period property or certain aircraft) that cost $450,000 and that you acquired after September 27, 2017. You did not elect to claim a section 179 deduction. You deduct 40% of the cost ($180,000) as a special depreciation allowance for 2025. You use the remaining cost of the property to figure a regular MACRS depreciation deduction for your property for 2025 and later years.

Like-kind exchanges and involuntary conversions. If you acquired qualified property in a like-kind exchange or an involuntary conversion after September 27, 2017, and the qualified property is new property, the carryover basis and any excess basis of the acquired property are eligible for the special depreciation allowance. The excess basis is the amount of any additional consideration given by the taxpayer in the exchange, for example, additional cash, liabilities, non-like-kind property, or other boot paid for the new property. See Pub. 551 for more information on carryover basis and excess basis.

If you acquired qualified property in a like-kind exchange or an involuntary conversion after September 27,

2017, and the qualified property is used property, only the excess basis of the acquired property is eligible for the special depreciation allowance. After you figure your special depreciation allowance, you can use the remaining carryover basis to figure your regular MACRS depreciation deduction. See Figuring the Deduction for Property Ac- quired in a Nontaxable Exchange in chapter 4 under How Is the Depreciation Deduction Figured .