Listed Property

What is Listed Property?

Listed property is a specific type of depreciable asset that is primarily used as a productive asset for business purposes. To qualify as listed property, the property should be used for over 50% of the company’s business, implying that it can also be used for personal purposes. The benefit derived by users of listed property results is taxable. Listed property is therefore subject to specific taxation rules.

Criteria for Classifying Listed Properties

Listed property can be any asset that is eligible to record depreciation in accordance with the Internal Revenue Services (IRS) rules. As long as the asset is primarily used for business purposes, it should be depreciated in value over time.

The IRS defines listed property to be any of the following:

1. Any passenger automobile. A passenger automobile is any four-wheeled vehicle primarily for use on public streets, roads, and highways and rated at 6,000 lbs or less of unloaded gross vehicle weight.
2. Any other property used for transportation purposes
3. Any computer and related peripheral equipment, unless the equipment is used only at a regular business establishment and owned or leased by the individual who operates the establishment. A normal business establishment includes a portion of a dwelling unit if, and only if, that portion is used both regularly and exclusively for the business.
4. Any property of a type generally used for recreation, amusement, or entertainment, purposes. Property used for amusement can include any communication, phonographic, photographic, and video recording equipment.

What is Depreciation?

Depreciation expense quantifies the usage of an asset over time. Although depreciation is a non-cash transaction, it is a significant operating expense.

Depreciation of assets can be reported through the following three methods:

1. Straight-line depreciation

Straight-line depreciation is the most common method of computing depreciation for financial reporting. In this method, the salvage value of the asset is subtracted from the historical cost of the asset and divided by the useful life of the asset.

2. Double-declining balance (DDB)

The double-declining balance method is a type of accelerated depreciation, where more depreciation expense is recognized in the early years of an asset’s life and a lesser amount of depreciation in the latter years. An accelerated depreciation method results in lower net income during the early years of an asset’s life and a higher net income in the latter years.

3. Component depreciation

Component depreciation is allowed under GAAP; however, it is very rarely used. Under component depreciation, each component of the asset has its useful life estimated, and then the depreciation expense is computed separately for each.

Introduction of Listed Property Rules

Listed property rules were initially introduced as a component of the U.S. tax code as a preventative measure to stop people from claiming tax deductions for the personal use of property, falsely claiming that it was for business purposes. Companies must take extremely detailed records of all assets that are deemed listed property, including the maintenance costs.

What is the Predominant Use Test?

The costs incurred in operations at the listed property are deemed non-deductible business expenses. Therefore, tax-paying entities are required to provide evidence that the property is used for business-related purposes.

The predominant use test stipulates that the business usage of the listed property needs to be used at least 50% of the time for business purposes. The fact must be proven for every asset that is considered listed property. It must be done so the business can:

• Claim a bonus deduction
• Claim an expense
• To depreciate the property

Additional Resources

CFI offers the Capital Markets & Securities Analyst (CMSA)® certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following resources will be helpful:

• Accounting Depreciation vs. Tax Depreciation
• Economic Life
• Federal Income Tax
• How to Use the IRS.gov Website
• See all accounting resources