What forms and documentation are required to substantiate first-year depreciation claims?
Ask Blue J any tax question, then go deeper. Follow up, add client-specific context, and explore the sources behind every answer with Blue J’s generative AI solution for tax research.
To substantiate first-year depreciation claims, including Section 179 expensing, bonus (special) depreciation, and regular MACRS depreciation, you must complete specific IRS forms and maintain detailed supporting documentation. The requirements are as follows:
1. IRS Forms Required
A. Form 4562, Depreciation and Amortization- Purpose: This is the primary form for claiming depreciation, Section 179 expensing, and special (bonus) depreciation.
When Required: You must file Form 4562 if you are claiming:
- Depreciation for property placed in service during the tax year,
- A Section 179 deduction (including any carryover from a prior year),
- Depreciation on any vehicle or other listed property (regardless of when it was placed in service),
- A deduction for any vehicle reported on a form other than Schedule C (Form 1040),
- Amortization of costs that begins during the tax year, - Any depreciation on a corporate income tax return (other than Form 1120-S)
- How to File: Attach Form 4562 to your tax return for each business or activity for which you are claiming depreciation or amortization. If you need more space, attach additional sheets, but complete only one Part I for Section 179 expensing per return.
B. Supporting Schedules and Statements
If you elect out of bonus depreciation for a class of property, you must attach a statement to your return indicating the class of property for which you are making the election and that you are not claiming the special depreciation allowance for that class.- If you elect Section 179 expensing, you must specify the items of property and the portion of the cost to be expensed on Form 4562.
C. Form 4797, Sales of Business Property
If you dispose of property for which you claimed Section 179 or bonus depreciation and must recapture any deduction, you must report the recapture as ordinary income on Form 4797.
2. Documentation and Recordkeeping Requirements
A. General Recordkeeping
You must keep records that show:
- The date the property was acquired,
- The date the property was placed in service,
- The cost or other basis of the property,
- The depreciation method and recovery period used,
- The business/investment use percentage,
- The amount of Section 179 deduction, bonus depreciation, and regular depreciation claimed each year,
- Any special elections made (e.g., election out of bonus depreciation, ADS election),
- Any adjustments to basis (such as for Section 179, bonus depreciation, or credits),
- The calculation of depreciation for each asset.
B. Section 179 Property
You must keep records that specifically identify each piece of qualifying Section 179 property, including:
- How and from whom the property was acquired,
- When it was placed in service,
- The cost and the amount expensed,
- The business use percentage,
- Any recapture events.
C. Listed Property (e.g., vehicles, computers)
For listed property, you must maintain adequate records or sufficient evidence to support:
- The amount of each separate expenditure,
- The amount of each business/investment use (e.g., mileage logs for vehicles),
- The date of each use,
- The business purpose of each use,
- The total use of the property for the year.
D. Supporting Documents
Purchase invoices, receipts, canceled checks, and contracts showing acquisition and cost,
- Proof of payment (e.g., bank statements),
- Documentation of improvements or additions,
- For property acquired in a like-kind exchange or involuntary conversion, documentation of the transaction and basis allocation.
E. Retention Period
Keep all records as long as they may be needed for the administration of any provision of the Internal Revenue Code, including for as long as the property is subject to depreciation and for the period of limitations for the return on which the deduction is claimed.
3. Special Elections and Statements
If you make or revoke a Section 179 election, or elect out of bonus depreciation, you must do so on a timely filed return (including extensions) or on an amended return within 6 months of the due date (excluding extensions), and attach the appropriate statement to your return.
4. Summary Table of Required Forms and Documentation:
5. Conclusion
To substantiate first-year depreciation claims, you must file Form 4562 with your tax return, maintain detailed records for each asset, and keep supporting documentation such as purchase invoices, usage logs (for listed property), and any required statements for special elections. These records must be retained for as long as the property is depreciated and for the period of limitations for the relevant tax returns.
Was this answer helpful?
What Blue J customers are saying
“We are excited to use Blue J to elevate the initial work product our team is able to produce."
"We’re incorporating Blue J to ensure our people are well-equipped with a research tool that delivers on both ease of use and quality of deliverable. It will save us a lot of time as a starting point, so we can focus our efforts on the analysis. Ultimately, it helps us get to the right answer, faster.”
"We’re incorporating Blue J to ensure our people are well-equipped with a research tool that delivers on both ease of use and quality of deliverable. It will save us a lot of time as a starting point, so we can focus our efforts on the analysis. Ultimately, it helps us get to the right answer, faster.”
"We had used Checkpoint for a long time but found it wasn’t particularly well-used in our practice."
"A lot of our practitioners would have to turn to Google to find what they were looking for, which of course isn’t ideal. Blue J is a real game-changer when it comes to this, since it combines the efficiency of Google with the authoritative tax materials our people really need to serve their clients best. At ELO, we pride ourselves on providing services that are focused on value for clients and exceeding their expectations. Adding Blue J to our toolbox will enable us to do just that, as we continue to evolve our service offerings to better serve our clients’ needs.”
"A lot of our practitioners would have to turn to Google to find what they were looking for, which of course isn’t ideal. Blue J is a real game-changer when it comes to this, since it combines the efficiency of Google with the authoritative tax materials our people really need to serve their clients best. At ELO, we pride ourselves on providing services that are focused on value for clients and exceeding their expectations. Adding Blue J to our toolbox will enable us to do just that, as we continue to evolve our service offerings to better serve our clients’ needs.”
"We find this tool to be a game-changer for us and our clients.”
“We had the opportunity to pilot some other AI solutions in the market, and found that the improvement over traditional search was limited - except in Blue J’s case, where the efficiency gain over traditional research methods is significant."
“We had the opportunity to pilot some other AI solutions in the market, and found that the improvement over traditional search was limited - except in Blue J’s case, where the efficiency gain over traditional research methods is significant."
“Blue J is an exciting technology because it enables the practitioner to remain in the driver’s seat of the analysis."
"Thoughtful functions are included to encourage and facilitate deeper analysis, not to replace or reduce it. We’ll continue to find new and impactful ways to leverage the technology, which has benefited our clients and staff alike. At RSM we strive to be compelling to our clients and to be digital by embracing new technologies to fulfill that promise.”
"Thoughtful functions are included to encourage and facilitate deeper analysis, not to replace or reduce it. We’ll continue to find new and impactful ways to leverage the technology, which has benefited our clients and staff alike. At RSM we strive to be compelling to our clients and to be digital by embracing new technologies to fulfill that promise.”
"We wanted to have a tool that people were using at all staff levels."
"We wanted something that lived up on their third screen - something that would be available and helpful to them every day. What we've found is it's been easy to get people to get into the habit of using Blue J because it helps people. Blue J allows us to quickly respond to client questions in a way that they can understand it, which helps us deal with the volume of client questions that come in. We were up and running very quickly with Blue J - within 5 minutes, our staff understood how this will be helpful, and the rest of the training program is refining prompting skills and building use cases and best practices."
"We wanted something that lived up on their third screen - something that would be available and helpful to them every day. What we've found is it's been easy to get people to get into the habit of using Blue J because it helps people. Blue J allows us to quickly respond to client questions in a way that they can understand it, which helps us deal with the volume of client questions that come in. We were up and running very quickly with Blue J - within 5 minutes, our staff understood how this will be helpful, and the rest of the training program is refining prompting skills and building use cases and best practices."
