What is a classified property?
Listed property is a specific category of depreciable property subject to a special set of tax rules if it is used primarily for commercial purposes. To be considered a listed property, an article must be used for more than 50% for the business of a company. This means that the rest of the time, the assets can also be used for personal purposes.
Examples of assets listed include passenger and other vehicles used for transportation, and cameras and other recording devices. As of January 1, 2020, mobile phones and other similar personal telecommunications devices are no longer considered listed property.
The rules relating to registered assets limit the amount of deductions and depreciation that can be taken if the asset is not mainly used in a business or a business.
To be eligible, registered property must be used for more than one purpose during the taxation year.
Understanding the listed property
Listed business property is all that it owns that is used for commercial purposes more than 50% of the time and that depreciates in value. In simple terms, these are goods used for commercial and personal purposes, such as company-owned vehicles, driven by managers, employees and / or shareholders.
The listed property rules were introduced in the tax code to prevent people from claiming tax deductions for the personal use of property on the pretext that it was used in a business or trade.
According to the Internal Revenue Service (IRS), the listed property includes:
- Automobiles weighing less than 6,000 pounds, excluding ambulances, hearses and trucks or vans for non-qualified personal use.
- Other goods used for transportation, including trucks, buses, boats, planes, motorcycles, and any other vehicle used to transport people or goods.
- Properties used for entertainment, leisure, or fun.
- Computers and related peripheral equipment put into service before January 1, 2020, unless they are used only in an ordinary commercial establishment and owned or rented by the person operating the establishment.
Listed property and predominant use test
The costs associated with the use of a registered asset are not deductible as business expenses. In other words, a taxpayer entity must justify the commercial use of an asset if it wants to depreciate the asset or deduct expenses.
The predominant usage test must be applied to each element of the listed property. This test states that the commercial use of the listed property must be greater than 50%. This must be done for each asset on the listed property in order to:
- Request bonus depreciation
- Request a spending election
- Depreciate property under the modified Accelerated Cost Recovery System (MACRS) depreciation system
Businesses are also required to keep detailed records of all assets used as listed property. This includes the amount for each property, including the original cost, necessary repairs, insurance and any other related expenses.
Key points to remember
- Listed property is depreciable property subject to a special set of tax rules if it is used primarily for commercial purposes.
- To be considered registered property, an asset must be used for commercial purposes at least 50% of the time. It can also be used for personal use.
- Examples of the goods listed include vehicles, other goods used in transportation, and computers.
Amortization of registered assets
If a listed asset is used primarily for commercial reasons, then it is subject to the legal percentage depreciation method, as it will be considered a commercial asset. Classified goods used for business only half the time at most – and pass the predominant use test – may still have depreciation based on the percentage of business use claimed therein, but they must be depreciated according to the linear method.
Cars used only to transport passengers are also subject to additional depreciation limitations. Listed property that does not meet the predominant use criteria is not eligible for depreciation under section 179 or other accelerated depreciation methods.
Recovered depreciation can be added to income in any year after the first year of use in which the use of the listed property is less than 50%. In other words, the taxpayer may have to reimburse part of the excess depreciation claimed. The amount of depreciation recaptured is the accelerated depreciation authorized for the years preceding the year of recovery, including any expenditure under article 179, less the amount of depreciation of the alternative depreciation system (ADS) MACRS which would have been authorized for the same period.