Where can taxpayers find IRS guidance on properly implementing the Alternative Depreciation System in their tax filings?
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.
Taxpayers can find IRS guidance on properly implementing the Alternative Depreciation System (ADS) in several authoritative sources, which provide both the legal requirements and practical instructions for applying ADS in tax filings:
1. Internal Revenue Code (IRC) § 168(g)
This section of the Code establishes the Alternative Depreciation System, specifying when ADS must be used (such as for property used predominantly outside the United States, tax-exempt use property, tax-exempt bond-financed property, imported property, and certain other categories), and that ADS uses the straight-line method over longer recovery periods than the General Depreciation System (GDS).
2. IRS Publication 946, "How to Depreciate Property"
Publication 946 provides comprehensive guidance on depreciation, including a dedicated discussion of ADS. It explains:
- When ADS is required or may be elected,
- The applicable recovery periods for different types of property under ADS,
- The straight-line method requirement,
- How to make the election to use ADS (generally by completing the appropriate section of Form 4562),
- How to report ADS depreciation on tax returns,
- The differences between GDS and ADS, and
- How to use the tables for ADS recovery periods.
3. Instructions for Form 4562, "Depreciation and Amortization"
The instructions for Form 4562 provide step-by-step directions for reporting ADS depreciation. They specify:
- Which lines and sections to use for ADS property (notably, Part III, Section C for property placed in service during the current year),
- How to determine the correct recovery period and convention,
- How to elect ADS for eligible property,
- How to report depreciation for property required to use ADS,
- The requirement to use the straight-line method over the ADS recovery period, and
- How to handle property conversions and elections.
4. Revenue Procedure 87-56 and IRS Tables
Rev. Proc. 87-56 (as updated) provides the class lives and recovery periods for property under both GDS and ADS. Appendix B of Publication 946 and the tables in the Form 4562 instructions summarize these periods and help taxpayers determine the correct ADS recovery period for each asset class.
Summary of Steps for Implementing ADS:
-Determine if ADS is required or if you wish to elect it.- Identify the correct ADS recovery period for each asset using IRS tables (Publication 946, Form 4562 instructions, or Rev. Proc. 87-56).
- Use the straight-line method over the ADS recovery period.- Apply the appropriate convention (half-year, mid-month, or mid-quarter) as specified.
- Report ADS depreciation on Form 4562, Part III, Section C for current-year property, or on the appropriate line for prior-year property.
- Maintain documentation supporting the classification, recovery period, and method used.
By consulting these sources, taxpayers can ensure they are properly implementing ADS in their tax filings in accordance with IRS requirements.
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."
