What Is Listed Property?
Listed property is tangible property that can be used for both business and personal purposes. The Internal Revenue Service (IRS) defines it as "passenger automobiles; any other property used for transportation; and property of a type generally used for entertainment, recreation, or amusem*nt." If listed property is used more than 50% for business purposes, it is eligible for special tax deduction and depreciation rules.
Key Takeaways
- Listed property is a tangible asset that can be used for both business and personal purposes, as defined by the IRS.
- Examples of listed property include many types of vehicles and entertainment devices.
- Listed property that is used more than 50% for business qualifies for advantageous tax treatment, including Section 179 deductions.
- Other listed property may still be depreciated to the extent that it is used for business.
Understanding Listed Property
Listed property is a tangible asset owned by a business that can be used for both business and personal purposes. If it is used more than 50% for business, it qualifies for special tax deduction or depreciation rules. The "more than 50%" can refer to time, vehicle mileage, or some other relevant measure.
The listed property rules were introduced to prevent people from claiming tax deductions for personal property under the pretense that it was being used in a business or trade. Businesses are required to keep what the IRS calls "adequate records" of all of their listed property. This includes its purchase price and any repair or maintenance costs, as well as evidence to substantiate its business use.
Examples of Listed Property
In its annually updated Publication 946: How to Depreciate Property, the IRS provides a long list of items that it classifies as listed property. They include:
- Passenger automobiles, defined as "any four-wheeled vehicle made primarily for use on public streets, roads, and highways and rated at 6,000 pounds or less of unloaded gross vehicle weight (6,000 pounds or less of gross vehicle weight for trucks and vans)."
- Any other property that is used for transportation, except for what the rules refer to as "qualified nonpersonal use vehicles" or "excepted vehicles." Those are vehicles that are unlikely to be used much, if at all, for personal purposes and include police and fire vehicles, ambulances, hearses, school buses, moving vans, and various types of trucks and tractors.
- Property that the IRS says is "generally used for entertainment, recreation, or amusem*nt (including photographic, phonographic, communication, and video recording equipment)."
Cell phones and similar personal telecommunications devices were once considered listed property. But Congress changed that in 2010. They can still be written off as a business expense to the extent that they are used for business, but they are no longer subject to the stricter record-keeping requirements of listed property.
How to Write Off Listed Property
When they file their annual taxes, businesses can write off the costs of the tangible property they own in several different ways, either as deductions or through one of several depreciation methods.
Section 179 Deduction
Listed property that meets the requirement of more than 50% business use is eligible for a Section 179 tax deduction.
Rather than having to depreciate an asset over a period of time, a Section 179 deduction allows a business to write off all or most of its cost in the year it was "placed in service." Often that will mean the same year as it was purchased.
The IRS sets limits on how large a Section 179 deduction businesses can take in any given year. For tax years beginning in 2023, the deduction maxes out at $1.16 million. In addition, certain types of property may be subject to their own maximums. For example, the maximum Section 179 deduction for sport utility vehicles is $28,900, again for tax years beginning in 2023.
In addition, a Section 179 deduction cannot exceed your taxable business income for the year. Any amount that remains after taking the deduction can then be depreciated.
You can't, of course, write off the entire cost of an asset if you use it for business only a portion of the time. Instead, that use must be prorated as a percentage. The IRS offers this simple example:
"May Oak bought and placed in service an item of section 179 property costing $11,000. May used the property 80% for business and 20% for personal purposes. The business part of the cost of the property is $8,800 (80% (0.80) × $11,000)."
Businesses can claim a Section 179 deduction using IRS Form 4562.
Depreciation
Listed property can also be depreciated over time. Property that meets the "more than 50%" test is eligible for the general depreciation system (GDS), an accounting method that allows it to be written off more quickly, with larger deductions in the early years. If property is used 50% or less for business, the business portion can still be written off, but only using the alternative depreciation system (ADS), which generally takes longer and spreads deductions out evenly over the years.
Listed property that is used more than 50% for business can also be eligible for the special depreciation allowance, sometimes referred to as bonus depreciation. It allows taxpayers to write off an even greater amount during the first year. This allowance applies only to "qualified property" that was purchased and placed in service after Sept. 27, 2017 and before Jan. 1, 2023. The allowance started at 100% in 2022 and is declining by 20% each year until it reaches 0% in 2027. Listed property that is used 50% or less for business is considered "excepted property" and not eligible.
Can Employees Deduct Listed Property?
According to the IRS, employees "can claim a depreciation deduction for the use of your listed property (whether owned or rented) in performing services as an employee only if your use is a business use." In addition, the use must be for the employer's convenience and required as a condition of employment.
What Is Mixed-Use Property?
The term "mixed-use" property is sometimes used as a synonym for listed property. However, it is more common in the field of real estate, often referring to a building with both commercial and residential tenants.
What Is Recaptured Depreciation?
Recapture is a process through which the IRS gets back some of the money it previously allowed the taxpayer to deduct through depreciation. For example, when a taxpayer takes depreciation deductions for an asset, that reduces their cost basis in the asset. If they later sell the asset for more than its cost basis, they can owe tax on that profit.
In the case of listed property, if the taxpayer claimed a Section 179 deduction for a particular asset, they may be subject to recapture if their business use of it falls to 50% or less at any time during that asset's recovery period. The recovery period is the number of years over which an asset would normally be depreciated under IRS rules. An automobile, for example, has a recovery period of five years under the general depreciation system.
The Bottom Line
Knowing what the IRS considers listed property, managing that property's business vs. personal use, and keeping careful records can help a business maximize its tax deductions and get the greatest financial benefit from its assets.
