Excerpt from Publication 946

Claiming the Special Depreciation Allowance
Introduction

You can take a special depreciation allowance to recover part of the cost of qualified property (defined next), placed in service during the tax year. The allowance applies only for the first year you place the property in service. For qualified property placed in service in 2005, you can take an additional 50% (or 30%, if applicable) special allowance. The allowance is an additional deduction you can take after any section 179 deduction and before you figure regular depreciation under MACRS for the year you place the property in service.
This chapter explains what is qualified property. It also includes rules regarding how to figure an allowance, how to elect not to claim an allowance, and when you must recapture an allowance.

Useful Items
You may want to see:

Form (and Instructions)

• 4562 Depreciation and Amortization
  See chapter 6 for information about getting publications and forms.
  

What is Qualified Property?
Terms you may need to know:
(see Glossary)

Business/investment use
Improvement
Nonresidential real property
Placed in service
Residential rental property
Structural components

Your property is qualified property if it is one of the following.

• Certain property with a long production period.
• Certain noncommercial aircraft.
• Qualified Liberty Zone property.
• Qualified Gulf Opportunity Zone (GO Zone) property.

Qualified Gulf Opportunity Zone Property

You can take a special depreciation allowance for qualified Gulf Opportunity Zone (GO Zone) property. Your property is qualified GO Zone property if it meets the following requirements.

1. It is one of the following types of property.
   
   a. Property depreciated under modified accelerated cost recovery system (MACRS) with a recovery period of 20 years or less. See Can You Use MACRS To Depreciate Your Property in chapter 1.
   
   b. Water utility property, which is either of the following.
   
   i. Property that is an integral part of the gathering, treatment, or commercial distribution of water, and what, without regard to this provision, would be 20-year property.
   
   ii. Any municipal sewer.
   
   c. Computer software that is readily available for purchase by the general public, is subject to a nonexclusive license, and has not been substantially modified. (The cost of some computer software is treated as part of hardware and is depreciated under MACRS.)
   
   d. Qualified leasehold improvement property (defined earlier in the discussion of qualified leasehold improvement property under Long Production Period Property).
   
   e. Certain nonresidential real property and residential rental property.
   
   
2. It is property that meets certain tests (explained next under Other Tests To Be Met).
   
   
3. It is not excepted property (explained on page 28 under Excepted Property.)