Form 4562: How Businesses Claim Depreciation and Amortization

What Is Depreciation and Why Does It Matter for Businesses?

When a business purchases a long-term asset, the cost generally can't be deducted all at once under standard tax rules. Instead, the deduction is spread over the asset's useful life according to the IRS depreciation schedule. A piece of equipment purchased this year might generate deductions over five or seven years rather than reducing taxable income immediately.

Depreciation matters because it's a real deduction that reduces what you owe without requiring an additional cash outlay in the years the deduction is taken. The asset was already purchased. Form 4562 is how that purchase continues to deliver tax benefit over time.

Section 179: Expensing Assets in the Year of Purchase

Section 179 lets businesses deduct the full purchase price of qualifying assets in the year they're placed in service, rather than depreciating them over multiple years. The 2024 deduction limit is $1,220,000. The phase-out begins when total property placed in service during the year exceeds $3,050,000, at which point the deduction reduces dollar for dollar.

Qualifying property includes equipment, business vehicles, off-the-shelf software, and certain improvements to nonresidential property. Section 179 is capped by the business's taxable income, meaning it can't create a loss. Any amount that exceeds the income limit can be carried forward to future years.

Bonus Depreciation: First-Year Deduction for Qualifying Property

Bonus depreciation allows businesses to deduct a percentage of a qualifying asset's cost in the first year, on top of or instead of standard depreciation. For 2024, the bonus depreciation rate is 60%, continuing a phase-down from the 100% rate that was available through 2022.

The key difference from Section 179 is that bonus depreciation has no income limitation. It can reduce taxable income below zero and generate a net operating loss, which can then be carried forward to offset income in future years. For businesses with significant capital expenditures and variable income, that flexibility makes bonus depreciation a meaningful planning tool.

MACRS: Standard Depreciation for Business Assets

When neither Section 179 nor bonus depreciation applies, or when a business chooses not to elect them, assets are depreciated under MACRS, the Modified Accelerated Cost Recovery System. MACRS assigns each asset type to a property class that determines the depreciation schedule.

Computers and certain vehicles fall into the 5-year class. Office furniture and most equipment fall into the 7-year class. Land improvements use a 15-year schedule. Residential rental property depreciates over 27.5 years. Commercial real estate uses a 39-year schedule. MACRS front-loads deductions slightly compared to straight-line depreciation, which benefits businesses that want to accelerate deductions in earlier years.

How to Complete Form 4562

Form 4562 is organized into several parts that correspond to different depreciation methods. Part I covers the Section 179 election, where you list qualifying assets and calculate the allowable deduction. Part II handles bonus depreciation for assets placed in service during the year. Part III covers MACRS depreciation for assets placed in service this year and in prior years still being depreciated. Part IV summarizes total depreciation claimed. Part V addresses listed property, which includes vehicles, computers, and other assets subject to additional IRS scrutiny because of their potential for personal use.

Accurate asset records are essential. For each asset you'll need the purchase date, original cost, and business use percentage. Mixed-use assets like vehicles require documentation of business versus personal use, typically through a mileage log.

How Slash Helps Businesses Track Asset Purchases for Depreciation

Every asset that gets depreciated on Form 4562 starts as a transaction in the business bank account. The purchase date, vendor, and amount paid are all captured at the moment the purchase is made. A Slash business bank account keeps those transactions organized and searchable throughout the year, so when it's time to compile the asset list for Form 4562, the acquisition data is already there rather than reconstructed from receipts and statements after the fact.

For businesses making multiple equipment or vehicle purchases throughout the year, that real-time transaction history also makes it easier to model depreciation strategy before year-end, when there's still time to decide whether additional purchases make sense to hit Section 179 or bonus depreciation thresholds.