Detailed Definition
Listed property refers to specific types of property that are typically used for both personal and business purposes and are subject to special depreciation rules. According to the IRS, listed property includes:
- Automobiles
- Computers and peripheral equipment
- Cellular phones
- Any other property used as a means of transportation.
For listed property to qualify for favorable depreciation methods such as the Modified Accelerated Cost Recovery System (MACRS), it must be used more than 50% of the time for business purposes. If used less than 50% of the time for business, the asset must be depreciated using the Straight-Line Method.
Passenger automobiles, including trucks and vans, have additional limitations on the depreciation deductions allowed under tax law.
Examples
- Business Use of a Car: A consultant uses their personal car for meeting clients and driving to office sites. If the car is used 60% of the time for business, it can qualify for accelerated depreciation methods.
- Business Use of a Computer: A freelancer uses a laptop both for personal entertainment and for completing freelance work. If the laptop is used 70% of the time for business purposes, the freelancer can use the statutory percentage method for depreciation.
- Business Use of a Cell Phone: A sales executive uses a company-provided smartphone primarily for business tasks such as coordinating meetings and emails. If the cell phone is used 80% of the time for business, it can be depreciated more favorably.
Frequently Asked Questions (FAQs)
Q1: What happens if listed property is used less than 50% for business?
A1: If listed property is used less than 50% of the time for business, it must be depreciated using the Straight-Line Method.
Q2: Are there any special rules for passenger automobiles?
A2: Yes, passenger automobiles have additional recovery limitations imposed upon depreciation deductions.
Q3: What is the Modified Accelerated Cost Recovery System (MACRS)?
A3: MACRS is a method of depreciation in which the cost of an asset is deducted over time under a specific schedule defined by tax regulations.
Q4: Can computer peripherals be considered listed property?
A4: Yes, computers and their peripheral equipment are considered listed property.
Q5: Do I need to keep records to verify business use of listed property?
A5: Yes, proper documentation and records of business use are required to verify the percentage and qualify for the appropriate depreciation method.
- Depreciation: The allocation of the cost of a tangible asset over its useful life.
- Modified Accelerated Cost Recovery System (MACRS): A method of accelerated tax depreciation recognized by the IRS.
- Straight-Line Method: A method of depreciating an asset by an equal amount each year over its useful life.
- Business Asset: An asset used in the conduct of business or commercial activities.
Online References
Suggested Books for Further Studies
- “Depreciation: Concepts and Methods” by Bowtah Safaa
- “The Complete Guide to Depreciation of Fixed Assets” by Matthew P. Patanie
- “U.S. Master Tax Guide” by CCH Tax Law Editors
Fundamentals of Listed Property: Taxation Basics Quiz
### What constitutes "listed property" for tax purposes?
- [x] Automobiles, computers, and cell phones
- [ ] Office furniture
- [ ] Industrial equipment
- [ ] Real estate investments
> **Explanation:** Listed property includes items such as automobiles, computers, and cell phones, which can be used for both personal and business use. Office furniture and real estate investments are not considered listed property.
### What is required for the statutory percentage depreciation method to apply to listed property?
- [ ] Property must be owned outright.
- [ ] Property must be brand new.
- [x] Property must be used more than 50% of the time for business purposes.
- [ ] Property must not be older than five years.
> **Explanation:** The statutory percentage depreciation method applies to listed property if it is used more than 50% of the time for business purposes.
### Which method of depreciation must be used if listed property is used less than 50% for business purposes?
- [ ] Double-declining balance method
- [ ] Sum-of-the-years' digits method
- [ ] Units of production method
- [x] Straight-Line Method
> **Explanation:** If listed property is used less than 50% of the time for business purposes, the Straight-Line Method of depreciation must be used.
### Do passenger automobiles have additional limitations on depreciation deductions?
- [x] Yes
- [ ] No
> **Explanation:** Passenger automobiles, such as cars, trucks, and vans, have additional recovery limitations on their depreciation deductions.
### Why might a business prefer to use the statutory percentage depreciation method?
- [x] It allows for faster recovery of the asset's cost.
- [ ] It provides a more consistent annual deduction.
- [ ] It simplifies tax preparation.
- [ ] It avoids audit risks.
> **Explanation:** The statutory percentage depreciation method can result in faster recovery of an asset's cost, which can be favorable for tax purposes.
### Can listed property include cell phones?
- [x] Yes
- [ ] No
> **Explanation:** Listed property includes cell phones, as these are often used for both personal and business purposes.
### What additional record-keeping is necessary for listed property?
- [ ] No specific records are needed.
- [ ] A single yearly statement of use.
- [x] Detailed records of business vs. personal use.
- [ ] Records of all repairs and maintenance.
> **Explanation:** Detailed records of business versus personal use must be maintained to properly depreciate listed property.
### How is business use percentage calculated for listed property?
- [ ] By comparing the total value of business vs. personal assets.
- [ ] By estimating average monthly use.
- [ ] By totaling the hours of business use and dividing by total hours used for both business and personal purposes.
- [x] By mathematically dividing the hours used for business by the total hours used.
> **Explanation:** Business use percentage is calculated by dividing the hours used for business by the total hours the property is used.
### Which depreciation method is typically not allowed for listed property used less than 50% for business?
- [ ] Straight-Line Method
- [ ] Sum-of-the-Years' digits method
- [x] Modified Accelerated Cost Recovery System (MACRS)
- [ ] Units of production method
> **Explanation:** The Modified Accelerated Cost Recovery System (MACRS) is not typically allowed for listed property if it is used less than 50% for business.
### Which of the following types of property typically does NOT qualify as listed property?
- [ ] A personal car used for business.
- [x] Office fixtures and fittings.
- [ ] A company-provided laptop.
- [ ] A business-use only smartphone.
> **Explanation:** Office fixtures and fittings do not typically qualify as listed property as they're not typically used for both personal and business purposes.
Thank you for exploring the tax implications of listed property. Continue to deepen your understanding and strive for clarity in managing your financial records!
