Which Depreciation System (GDS or ADS) Applies?

Terms you may need to know (see Glossary):

Listed property Nonresidential real property Placed in service Property class Recovery period Residential rental property Tangible property Tax exempt

Your use of either the General Depreciation System (GDS) or the Alternative Depreciation System (ADS) to depreciate property under MACRS determines what depreciation method and recovery period you use. You must generally use GDS unless you are specifically required by law to use ADS or you elect to use ADS.

If you placed your property in service in 2025, complete Part III of Form 4562 to report depreciation using MACRS. Complete Section B of Part III to report depreciation using GDS, and complete Section C of Part III to report depreciation using ADS. If you placed your property in service before 2025 and are required to file Form 4562, report depreciation using either GDS or ADS on line 17 in Part III.

Required use of ADS. You must use ADS for the following property.

• Nonresidential real property, residential real property, and qualified improvement property held by an electing real property trade or business (as defined in section 163(j)(7)(B) of the Internal Revenue Code). For more information, see Revenue Procedure 2019-8 on page 347 of Internal Revenue Bulletin 2019-3, available at IRS.gov/irb/2019-03_IRB#RP-2019-08, as modified by Revenue Procedure 2021-28 on page 5 of Internal Revenue Bulletin 2021-27, available at IRS.gov/irb/2021-27_IRB#RP-2021-28 .

• Any property with a recovery period of 10 years or more under GDS held by an electing farming business (as defined in section 163(j)(7)(C) of the Internal Revenue Code). For more information, see Revenue Procedure 2019-8 on page 347 of Internal Revenue Bulletin 2019-3, available at IRS.gov/irb/ 2019-03_IRB#RP-2019-08 .

• Any tax-exempt use property.

• Any tax-exempt bond-financed property.

• All property used predominantly in a farming business and placed in service in any tax year during which an

28 Chapter 4 Figuring Depreciation Under MACRS Publication 946 (2025)

election not to apply the uniform capitalization rules to certain farming costs is in effect.

• Any property imported from a foreign country for which an Executive order is in effect because the country maintains trade restrictions or engages in other discriminatory acts.

• Any tangible property used predominantly outside the United States during the tax year.

• Any listed property used 50% or less in a qualified business use during the tax year (discussed later in chapter 5).

Caution: If you are required to use ADS to depreciate your property, you cannot claim any special depreciation allowance (discussed in chapter 3 ) for the property.

Electing ADS. Although your property may qualify for GDS, you can elect to use ADS. The election must generally cover all property in the same property class that you placed in service during the year. However, the election for residential rental property and nonresidential real property can be made on a property-by-property basis. Once you make this election, you can never revoke it.

You make the election by completing Form 4562, Part III, line 20.