Listed Property

What Is Listed Property?

Listed property is a category of assets defined in Section 280F of the U.S. Internal Revenue Code. It includes items that are easy to use for personal purposes as well as business purposes, such as passenger automobiles, other vehicles used for transportation, and property used for entertainment, recreation, or amusement. Some items once on the list, such as cell phones and computers, were removed by 2010 legislation. Because personal use of listed property is hard to separate from business use, the tax code applies tighter limits and recordkeeping requirements to it.

How the Rules Work

The central test is the business-use percentage, meaning the share of the asset's total use that is for business. Only that business share of the cost can be deducted over time through depreciation. Two further rules depend on how much business use occurs:

• If business use is more than 50 percent, the owner may use accelerated depreciation and may claim the Section 179 deduction, subject to the applicable limits.
• If business use is 50 percent or less, the owner must use straight-line depreciation over the longer alternative recovery period, and the Section 179 deduction is not allowed.

If business use falls to 50 percent or less in a later year after accelerated methods were used, some of the earlier depreciation may have to be added back to income through recapture.

Recordkeeping Requirements

Taxpayers must keep adequate records or sufficient evidence to support each business-use claim. For vehicles, this usually means a log showing the date, mileage, destination, and business purpose of each trip. If the records are missing or incomplete, the deduction can be disallowed in an audit. The requirement reflects the concern that these assets can be used for personal activities that the tax code does not allow to be deducted as business expenses.

Why It Matters to Investors

Listed property rules mainly affect small business owners, self-employed people, and anyone who claims depreciation on vehicles or equipment used partly for personal purposes. Understanding the category helps explain why a business's reported depreciation can differ from the full cost of an asset. The rules are detailed and can change over time, so readers facing these questions often consult a qualified tax professional.