Instructions for Form 4562

Instructions for Form 4562

Table of Contents
Table of Contents

Form 4562 typically applies to your business when you have bought a piece of equipment or a vehicle or any asset that will be utilized for business purposes. When filing your taxes, this form will require you to add in all the details pertaining to the depreciation and amortization of the asset you have recently purchased.

A complete understanding of the form will alleviate most of your tax problems.

We shall learn how the form plays out in this scenario in this article. The article decodes the instructions for filling out the form. We have also included some of the most relevant terms around form 4562. Here they are:

What are Depreciation and Amortization?

According to IRS rules, you may not be able to write off the entire value of a big purchase in one year. This is why you spread the cost out over several years.

What is Depreciation?

Depreciation is an accounting practice for writing off tangible assets over several tax years. Depending on your business structure, your depreciation deduction is reported each year on Form 1040 (Schedule C), Form 1120/1120S, or Form 1065.

What is a Tangible Asset?

A tangible asset is defined as assets that have a physical presence and can be seen and touched. Examples of tangible assets are cash, buildings, vehicles, inventory, equipment.

What is Amortization?

Amortization is a concept very similar to depreciation with the only difference being that it applies to an intangible asset. So, when the value of an intangible asset is depreciated across the years, it is termed amortization.

What is an Intangible Asset?

An intangible asset can be termed an asset that does not have a physical presence and cannot be touched. Some examples of intangible assets can be patents, trademarks, goodwill, licenses, list of clients.

Choosing the right amortization strategy depends on how much income you generate for your business and for how many years you are claiming the deduction.

Once you have understood depreciation clearly, it would position you much better to get a grip over the form 4562. For someone who plans to amortize an asset, consulting a CPA is a good idea.

What Is Form 4562?

Form 4562 must be filed only if you are deducting depreciable assets on your tax return. As learned from the previous section, if you plan to use an asset for more than one financial year, it is considered a depreciable asset.

All the huge assets you utilize for your business are those whose depreciation will be counted for in the form 4562. This implies that you would be filing Form 4562 every year till your assets continue to depreciate. Form 4562 also enables you to file a bonus depreciation claim.

Format of Form 4562: Depreciation and Amortization
Format of Form 4562: Depreciation and Amortization

When should you file Form 4562?

Your annual tax return should include Form 4562. You must note that depreciation and amortization taxes should be filed the same year you purchased the property.

What do you need to fill out in Form 4562?

Like any other form, you will need to keep all your financial data ready when you decide to file your Form 4562. Here is what else you will require:

  • The cost or value of the asset which is being depreciated
  • The receipt of the asset being depreciated
  • The date on which the asset was put to use first or when you started using it for your business
  • Amount of income your business earned in that year

Some businesses may utilize assets for purposes other than work. The vehicle or the office car may be used for personal reasons. An important point to remember here is that if the asset in question is also being used for personal purposes along with business, you will also need to add the following:

  • A percentage-wise description or breakdown of how often the asset is used for work and for other purposes
  • Any other essential documents or evidence or logs such as mileage of the vehicle

Who Can File Form 4562: Depreciation and Amortization?

Form 4562 needs to be filed only if you plan to deduct a depreciable asset from your tax return. Anyone who wants to achieve this must include the following:

  • Depreciation for the tax year of the asset in service
  • The depreciation of any listed vehicle or property, irrespective of when it was placed into service
  • Section 179 deductions which may include carryovers from previous years
  • Any depreciation claimed on a corporate income tax return other than Form 1120-S: Income Tax Return for an S-Corporation
  • Deductions for vehicles reported on forms other than Schedule C: Profit or Loss From Business
  • Amortization costs incurred during the tax year

How to File: Form 4562 Specific Instructions

It is essential to get a clear understanding of the form before starting to fill it out. It is a form that comprises many parts and lines. This section will attempt to get a good grip over the various lines and what they mean.

Under Section 179, you are permitted to depreciate as much property as possible during the first year. You may depreciate the entire asset and if not, the overflow of depreciation is deferred over the upcoming years.

Although the instructions in the lines are straightforward and unproblematic, we have tried to put them across in a simple manner. For any doubts, visiting IRS instructions for Form 4562 can help. Let’s take a closer look at the instructions given in each line.

Part I: Section 179 deductions

Line 1

As a general rule, section 179 property (including qualified section 179 real property) placed in service during the tax year beginning in 2021 is eligible for a deduction of up to $1,050,000.  

Line 2

Enter the value of all of the section 179 property you used during the tax year including the value of all qualified real estate you opted to treat as section 179 property. 

You should also include the costs of the following. 

  • The property listed in Part V

  • Any property that your spouse places in service, even if you are filing a separate return. For 2021, this includes qualified section 179 real property that your spouse has elected to be treated as section 179 property

Line 3

The maximum dollar amount for section 179 property you may elect is shown on line 1. When the cost of all section 179 properties placed into service in 2021 exceeds $2,620,000, this amount will be reduced.  

Line 4 and Line 5

If a property is worth over $2.5 million, the limit reduction is applied to Line 1.

Line 6

In this section, you list the assets you depreciate. Include its price if it is used exclusively for business. Include the amount you are depreciating under * Elected cost if you are not depreciating the entire value of the asset.

Line 7

On Line 29, enter the amount you have chosen to expense for the listed property 

Line 10

Amounts entered here would reflect net write-offs last year and depreciation this year if you carried over part of the asset value from last year.

Line 11

This is the maximum deduction you can take this year. Depending on which you choose, it either represents your net earnings or your net profit for the year, after deducting any reduction limits (Lines 4 and 5). Select the smaller of those two amounts.

Line 12

Indicate the total amount of deductions. If the amount is above the limit listed on Line 11, use the value from Line 11.

Line 13

It's what your carryover depreciation will be next year since it's over the limit on Line 11. Subtract Line 11 from the total amount you are writing off to get this number.

Part II: Special depreciation allowance

Line 14- 16

An additional special depreciation allowance may be available if the qualified property is placed in service during the tax year. Depreciation allowances are only available for the first year the property is in operation. In addition to your section 179 deduction, you can also take the allowance deduction. It is added to the depreciation under the MACRS before figuring your regular depreciation.  

For more details, check out the instructions to know if you qualify.

Also, this part could get complicated; it is advised to take the help of a qualified CPA.

Part III: MACRS depreciation

Understanding this section helps you if you are planning to depreciate your property over several years, rather than deducting everything with Section 179, and addressing the overflow later.

The Modified Accelerated Cost Recovery System divides fixed assets into classes that have fixed devaluation periods. The IRS has established guidelines in regards to assets that are eligible for depreciation under the MACRS. As a result, the depreciation of assets is faster in the early years of their use and slows down as time goes on.

Line 17

This line consists of the amount of previous years’ depreciation that has been carried over.

Line 18

In order to keep things simple, your different similar assets will be grouped together as a ‘general account’. 

Line 19a-Line 19i

Again, this is a vast section that can be summarized as the section consisting of the information about your various depreciable assets. 

Part IV: Form Summary

This section includes the summary of Form 4562.

Line 21

Your listed property's value can be entered here which is used partly for private purposes. You may skip to Part V in case of doubts and come back once you are sure what to fill in here.

Line 22

Enter your total deduction here. You do not have to fill this out if you're filing as a partnership or S corporation. A member's or shareholder's total deduction will be shown on their tax returns.

Line 23

You must capitalize the procurement or production costs if you are deducting them. This is where Section 263a comes in, which is a tricky bit of number crunching.

Part V: Listed Property

You can use the listed property for both business and personal purposes. The information that goes in Part V is the depreciation on your listed property which includes claiming the standard mileage rate or actual vehicle expenses. You can do this regardless of when you purchased the property.

A point to note is that in case you file Form 2106, you must report this information on that form instead of Part V. Additionally, in case you are filing Schedule C (Form 1040) and you claim standard mileage or actual vehicle expenses (excluding depreciation), and you do not have to file Form 4562 for any other reason, then include vehicle information in Part IV of Schedule C instead of Form 4562.

Line 25

You can claim an additional deduction if the property is both listed and qualifies for the deduction. See Line 14

Line 26

In line 26, you should list assets that you use more frequently for business purposes than for personal use.

Line 27

List assets you use most frequently for your personal use as opposed to your business.

Section B: If your company has employees who use company vehicles for work, you may skip this section move on to Section C.

Line 30 - Line 37

This line comprises information about mileage along with other important data of your office vehicles.

Section C: Line 37 to Line 41

Line 37 to Line 41

This part will help you analyze if you need to fill out Section B.

Part VI: Amortization

This section includes all information about the assets that you are amortizing.


Depreciation and Amortization are the two sides of the same coin. Yet, understanding amortization could be a slippery zone. This is so as it involves intangible assets which do not have a physical form. Imagine depreciating a patent or goodwill!

It is, therefore, recommended you take the help of a qualified CPA who understands the nuances of the terms and helps you file Form 4562.

How can Deskera Help You?

Deskera Books is an online accounting, invoicing, and inventory management software that is designed to make your life easy. A one-stop solution, it caters to all your business needs from creating invoices, tracking expenses to viewing all your financial documents whenever you need them.

Deskera Books
Deskera Books
Try Deskera for Your Business Today
Sign Up for a Free Trial Now!

Key Takeaways

Let’s look at the key points from the article:

  • Form 4562 typically applies to your business in instances where you have bought a piece of equipment or a vehicle or any asset that will be utilized for business purposes
  • When you are filing your taxes, this form will require you to add in all the details pertaining to the depreciation and amortization of the asset you have recently purchased
  • Depreciation is an accounting practice for writing off tangible assets over a number of tax years
  • A tangible asset is defined as assets that have a physical presence and which can be seen and touched
  • Amortization is a concept very similar to depreciation with the only difference being that it applies to an intangible asset. So, when the value of an intangible asset is depreciated across the years, it is termed amortization
  • An intangible asset can be defined as an asset that does not have a physical presence and that cannot be touched
  • All the huge assets that you utilize for your business are the ones whose depreciation will be counted for in the form 4562
  • Your annual tax return should include Form 4562
  • Depreciation and amortization taxes should be filed the same year you purchased the property
  • Form 4562 comprises six parts which request a piece of comprehensive information about your assets
Relationship Between Amortization Vs. Depreciation
Amortization and Depreciation are two ways to calculate the value of assets[] expended annually. The cost amount isused as a tax credit to reduce the company’s tax obligations and to diversifythe cost of an investment. Table of Contents * Similarities Between…
Is Accumulated Depreciation an Asset?
No, accumulated depreciation is not considered an asset account. In fact, it’s quite the opposite. Accumulated depreciation is a contra assetaccount that devalues a business’ long-term assets. Let’s explain what all of that means by defining both assets and accumulateddepreciation in detail. Ta…
Is Depreciation an Operating Expense?
The short answer is yes: depreciation is an operating expense. Depreciation is an accounting method that allocates the loss in value of fixedassets [] over time. And since these fixed assets areessential for day-to-day business operations, depreciation is …
Understanding Tax Depreciation in 2022
The word ‘depreciation’ does not have a nice ring to it. After all, when itcomes to financial dealings and wealth management, we all want everything to‘appreciate.’ But everything starts making sense when you see the larger picture- tax depreciation. Tax depreciation will, in fact, contribute to…
What Is Fixed Asset? Everything You Need to Know About Fixed Assets
Fixed Assets are all around us at the workplace. The company’s laptop that you are currently using, the projector in the conference room, and even the coffee machine in the pantry - they are all Fixed Assets!

Hey! Try Deskera Now!

Everything to Run Your Business

Get Accounting, CRM & Payroll in one integrated package with Deskera All-in-One.

Great! Next, complete checkout for full access to Deskera Blog
Welcome back! You've successfully signed in
You've successfully subscribed to Deskera Blog
Success! Your account is fully activated, you now have access to all content
Success! Your billing info has been updated
Your billing was not updated