How Does Listed Property Affect Business Taxes?
Listed property is a specific type of personal property in a business. The rules for deducting expenses associated with the purchase and use of listed property for you and your employees for business purposes are different from the rules for other types of property.
Trying to keep track of business and personal use of listed property is difficult. Until the IRS comes up with a better system, you should continue to keep detailed records of employee use of company-provided automobiles and other listed property if you want to deduct these costs as business expenses.
What Is Listed Property?
Listed property is business property that is used by employees or owners in a business which can also be used for personal purposes. The types of listed property include:
- Passenger automobiles weighing 6,000 pounds or less
- Other property used for transportation, like a motorcycle or boat
- Property generally used for entertainment, recreation, or amusement, including digital cameras and video recording equipment.
Listed property doesn't include:
- Cameras, tape recorders, or video equipment used exclusively in your trade or business or always at your business location
- Computers or peripherals (like printers) used exclusively at your business location and owned by the business
- Vehicles used for transporting people or property for compensation or hire (like a taxi or delivery truck)
- Trucks or vans placed in service after July 6, 2003, that are qualified non-personal use vehicles (like a van modified for delivery)
Property Previously Considered as Listed Property
As of January 1, 2010, cell phones and other similar personal telecommunications devices were no longer considered "listed property." And as of January 1, 2018, computers and peripheral equipment were also removed from consideration.
Even though these items have been taken off the listed property designation, it doesn't mean you don't have to keep track of them. You may still be required to show that they are being used by the business.
Deducting Listed Property Expenses
An employee who owns listed property and uses it (like a car for business driving) can claim a depreciation deduction for use of that property in performing services as an employee and only if the use is for the employer's convenience, and/or is required as a condition of employment.
Employees can no longer deduct expenses for use of listed property or any other business expenses not reimbursed by employers. In the past, these employee expenses were included on Schedule A as miscellaneous itemized deductions.
Predominant Use Test
Because listed property can be used for personal purposes, if you want to depreciate this property or deduct expenses for using it, you must substantiate the business use.
The information you used to calculate depreciation deductions for listed property and other property must be part of your permanent records.
The predominant use test says that the asset must be used predominantly (more than 50%) for business purposes. If more than 50% of the total use of the asset is related to your trade or business, the asset is considered a business asset and the business use of that asset can be depreciated. If the asset meets the "predominant use test," expenses related to use of the asset related to business use can be deducted.
Qualified Business Use of Listed Property
You can depreciate listed property if it meets specific business use requirements. It must be used predominantly (more than 50% of total use) for qualified business purposes. If you can't prove this use percentage, your depreciation deductions may be limited or not allowed.
Here are the limits:
- Listed property that doesn't meet the predominant use test is not eligible for Section 179 depreciation or other accelerated depreciation methods.
- Listed property may need to be depreciated using the alternative depreciation method, which increases the number of years over which property is depreciated, thus decreasing the annual deduction.
Calculating Business Use
Calculate the use of a vehicle based on mileage, dividing the number of miles for business use during the year by the total number of miles driving for all purposes during the year. For example, if you drove a business car a total of 75,000 miles a year, and you can prove you drove 43,000 for business purposes, your business driving mileage was 57%.
Calculate the use of other listed property with the most appropriate unit of time that the property was actually used for (not just available for). For example, to calculate the business use of a computer, divide the number of hours it was used for business purposes by the number of total hours it was used during the year.
You can't count commuting mileage as business use of a car, because the IRS considers commuting as personal use.
Form 4562 to Report Listed Property Expenses
Use IRS Form 4562 to report listed property expenses and claim the deduction for your business for depreciation and amortization, including for listed property. You can also use the form to claim the standard mileage rate or actual vehicle expenses for use of business vehicles, or depreciation on other listed property.