Qualified Business Use of "Listed Property"
A guide to the qualified business use of "listed property," according to IRS rules. These regulations can impact taxpayers significantly, so it is import
(1) Use for the production-of-income is not considered qualified business use.
“ Example - Production-of-Income Use of Listed Property - During the tax year, a taxpayer uses a camera for 300 hours during the year. Of that time, 147 hours are for use in the taxpayer’s business and 6 hours are used to take pictures of potential investments. The remainder of the time is personal. Though the camera is used over 50% of the time for business/investment purposes, the actual business-use time is only 49% (147/300). The listed property limitations must be applied to the camera, i.e., no Section 179 deduction is allowed and straight-line depreciation over the earnings and profits (ADS) life must be used. On the other hand, when an asset is used for both business and investment purposes and the qualified business-use percentage is over 50%, then both the business and investment use count towards allowable MACRS deductions for the property. ”
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“ Example - Computing Business Use of Listed Property – During the tax year, an asset is used 60% for business, 20% for investment, and 20% for personal purposes. The cost recovery deduction will be based on 80% business/investment use. For 2018 through 2025, the investment use portion of the depreciation is not deductible because the TCJA suspended the miscellaneous deduction for items subject to the 2% of AGI reduction, which includes investment expenses. Likewise, if the business use is by an employee, none of the depreciation or related expenses will be deductible. ”
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(2) Commuting is not a qualified business use.
(3) Leasing of property to a 5% owner (or person related to the owner, as defined in Code Section 267(b)) of the taxed entity is not qualified business use.
(4) The use of listed property which is provided as compensation for services of a 5% owner (or person related to the owner) is not qualified.
“ Example - Listed Property Limits for Business Owners - Robert owns a clothing store and employs his brother, Jim, in the business. Part of Jim’s compensation includes use of a company car for personal purposes. The value of the use of the car is included in Jim’s gross income and Robert withholds payroll taxes on it. This use of the property is not considered “qualified business use.”However, assume the same facts as above except Jim uses the car 75% for use in the clothing store related activities and 25% for personal use. The personal use portion is included on Jim’s W-2 and taxes are withheld. In this case, the company’s qualified business use is 75% (and total business use is 100%). ”
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(5) Use of listed property by any person (other than 5% owner or owner’s relative), which is provided as part of that person’s compensation, is not qualified business use. However, if the value of the use is added to the user’s income (e.g., if the value is treated as wages, subjected to withholding and included on the employee’s W-2), then this will be considered qualified business use.
“ Example - Listed Property Treated as Compensation - India, Inc. owns several automobiles which are used by employees in the course of India’s business. The employees also commute back and forth to their homes in these vehicles. The value of the commuting is included in the W-2s of the employees and taxes are withheld. Under these circumstances, the use of the cars by the employees (even the personal use) is qualified business use for India, Inc. ”
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