What Is Listed Property? Business Use Test and Depreciation Caps

Listed property is a category of business assets that the IRS treats with extra suspicion because they lend themselves to personal use. Under Section 280F of the Internal Revenue Code, these assets must clear a 50% business-use threshold before you can claim accelerated depreciation, Section 179 expensing, or bonus depreciation, and you have to keep contemporaneous records showing exactly how they were used.¹ Miss the threshold or lose the records, and the deduction shrinks or disappears.

What Qualifies as Listed Property

Three categories of assets currently fall inside the definition:

Passenger automobiles: any four-wheeled vehicle built for public roads and rated at 6,000 pounds or less in unloaded gross vehicle weight (gross vehicle weight for trucks and vans). Most sedans, crossovers, and smaller SUVs sit here.
Other transportation property: airplanes, helicopters, boats, and motorcycles, unless substantially all of the use is for hire.
Entertainment and recreation property: photographic, video, and sound recording equipment of a type generally used for entertainment. Equipment used exclusively at your regular business location is excepted.

Two categories that used to be on the list are no longer there. Cell phones came off in 2010.² Computers and peripheral equipment came off starting in 2018 under the Tax Cuts and Jobs Act.³ A laptop you use partly for personal browsing is no longer subject to listed property rules.

Vehicles above 6,000 pounds gross vehicle weight (heavy SUVs, large vans, full-size pickups) are still transportation property and still subject to the 50% test and the record-keeping rules, even though they escape the passenger vehicle depreciation dollar caps.⁴

Certain specialized government-owned vehicles sit outside the definition entirely, because personal use (other than commuting) is prohibited. Clearly marked police and fire vehicles, qualified moving vans, school buses, and specially outfitted ambulance or rescue vehicles all fall into this exemption.⁵

The 50 Percent Business Use Test

The predominant use test is the rule everything else hangs on. The asset has to be used more than 50% for qualified business purposes in the year you place it in service.⁶ Above 50%, you get the full menu: MACRS accelerated depreciation, Section 179, and bonus depreciation. At 50% or below, all three disappear, and you’re forced onto the Alternative Depreciation System (ADS), which uses straight-line depreciation over the same five-year recovery period for automobiles. Same length, slower payout.

The first-year decision locks in the method for the life of the asset. Start at 45% business use and you’re stuck with ADS even if usage jumps to 80% next year. Start above 50% and MACRS applies from the outset, though a later drop below the line triggers recapture (more on that below).⁷

Only the business-use share of the cost is depreciable. A $50,000 vehicle used 70% for business generates depreciation on $35,000, not on the full sticker price. You report the percentage on Part V of Form 4562.

Which Miles Actually Count

Commuting is the most common tripwire on the 50% test. Driving between your home and your regular workplace is personal, regardless of distance.⁸ Taking business calls during the drive doesn’t change that. Parking at your regular workplace is likewise nondeductible.

Consider someone driving 20,000 miles in a year, with 8,000 miles of commuting and 6,000 genuine business miles. That’s 30% business use, well below the threshold, and the remaining 6,000 personal errand miles make it worse. Trips from home to a temporary work location, or between business locations during the workday, generally do count as business miles. The question is whether the destination is your regular place of business or somewhere else.

Depreciation Caps for Passenger Vehicles

Even after a passenger automobile clears the 50% test, annual depreciation is capped at fixed dollar amounts the IRS adjusts each year for inflation. For vehicles placed in service in 2026, the first-year cap is $20,300 with bonus depreciation or $12,300 without, with lower amounts in subsequent years.⁹ The cap covers the combined total of MACRS depreciation, Section 179, and bonus depreciation. A $60,000 sedan used 100% for business in 2026 gets you $20,300 in year one, not the full purchase price, and the balance stretches out at the capped annual amounts for years past the standard five-year recovery period.

Heavy vehicles over 6,000 pounds gross vehicle weight avoid these passenger caps, which is why they’re popular for business buyers. Section 179 for heavy SUVs has its own separate ceiling, set at $31,300 for 2025 and adjusted annually.⁸ Any cost above the Section 179 ceiling can still be depreciated normally.

Bonus depreciation under Section 168(k) has been restored to 100% for qualified property acquired after January 19, 2025, under the One Big Beautiful Bill Act, replacing the phase-down that had reduced it to 40% in 2025.¹⁰ For listed property, the 50% business-use requirement still gates access.

Leased Vehicles

Leasing a passenger vehicle doesn’t get you around the listed property rules. Instead of the depreciation caps, you deal with an inclusion amount that reduces your lease deduction. The IRS publishes tables each year based on the vehicle’s fair market value at the start of the lease.⁹ The mechanism exists to keep leasing from becoming an end-run around the depreciation ceilings. The more expensive the vehicle, the larger the inclusion amount and the smaller your net deduction.

The Records You Have to Keep

Listed property carries record-keeping requirements stricter than those for ordinary business assets. You need contemporaneous documentation, meaning records made at or near the time of each use, showing the amount of use, the time and place, and the business purpose.⁸

For a vehicle, that means a mileage log capturing the date of each business trip, starting and ending odometer readings, the destination, and the specific business reason. “Client meeting” is not enough. Something like “Meeting with ABC Corp. at their downtown office to review Q3 contract” is what the IRS expects.⁸ A log kept weekly, consistently, qualifies as timely. Reconstructing one from memory at year-end does not.

The IRS permits a sampling approach, where you track use closely for a representative portion of the year and extrapolate. It works only if you can show the sample period reflects your normal pattern, which is hard to defend under audit. Logging every trip is the safer path.

For non-vehicle listed property such as entertainment equipment, a comparable log of dates, duration, and specific business activity is required. Without adequate records you lose more than the depreciation. Operating expense deductions for fuel, maintenance, and insurance on the asset go with it.

If you’d rather skip tracking actual vehicle expenses, the IRS standard mileage rate is an alternative. For 2026, the business rate is 72.5 cents per mile.¹¹ You still need a log of business miles, but you skip receipts for gas, oil, and repairs.

What Happens if Business Use Drops Later

Clearing the 50% test in year one doesn’t settle the matter. If business use falls to 50% or below in any later year, you have to give back part of the depreciation you already claimed. This is recapture, and it treats the excess depreciation as ordinary income in the year business use drops.⁶

The calculation compares the accelerated depreciation you actually took, including any Section 179 and bonus depreciation, against what you would have deducted under ADS straight-line. The difference is added to your gross income and reported on Form 4797, even though you haven’t sold the asset.¹²¹³ Your basis in the asset is adjusted upward by the recaptured amount, and future depreciation switches to ADS straight-line. An asset that was throwing off large deductions can suddenly generate taxable income and produce smaller deductions going forward, which surprises taxpayers winding down a business or shifting toward remote work.

Employees Versus Self-Employed

When an employer provides a vehicle, the personal use portion is a taxable fringe benefit. The employer values that personal use (using a cents-per-mile calculation, the commuting rule, or the lease value rule) and includes it in the employee’s W-2 wages in boxes 1, 3, and 5.¹⁴

From the employee’s side, deducting business use of a personal vehicle is largely off the table. The Tax Cuts and Jobs Act eliminated the miscellaneous itemized deduction that W-2 employees previously used for unreimbursed employee business expenses, and that provision has been made permanent. If your employer doesn’t reimburse you, you generally cannot deduct the business use on your federal return.

Self-employed individuals and business owners filing on Schedule C, Schedule E, or Schedule F still claim these deductions directly, subject to every listed property rule described above.

Penalties for Weak Records

Losing the deduction isn’t the only downside. Inadequate substantiation can trigger the accuracy-related penalty under Section 6662. If the IRS finds the underpayment came from negligence or disregard of the rules, the penalty is 20% of the underpaid tax, on top of the additional tax itself plus interest.¹⁵ Claiming listed property deductions without contemporaneous records is exactly the fact pattern that qualifies as negligence. A mileage log kept as you go is a small price compared to what a disallowed deduction plus penalty costs.

1
Office of the Law Revision Counsel. 26 U.S. Code 280F – Limitation on Depreciation for Luxury Automobiles; Limitation Where Certain Property Used for Personal Purposes
2
Internal Revenue Service. Notice 2011-72 – Cell Phones Removed from Listed Property
3
Internal Revenue Service. Tax Cuts and Jobs Act: A Comparison for Businesses
4
Office of the Law Revision Counsel. 26 USC 280F – Limitation on Depreciation for Luxury Automobiles; Limitation Where Certain Property Used for Personal Purposes
5
Federal Register. Substantiation Requirements and Qualified Nonpersonal Use Vehicles
6
Internal Revenue Service. Publication 946 (2024), How To Depreciate Property
7
Internal Revenue Service. Instructions for Form 4562 (2025)
8
Internal Revenue Service. Publication 463 (2025), Travel, Gift, and Car Expenses
9
Internal Revenue Service. Revenue Procedure 2026-15 – Depreciation Limitations for Passenger Automobiles
10
Internal Revenue Service. Notice 2026-11 – Interim Guidance on Additional First Year Depreciation Deduction
11
Internal Revenue Service. Notice 2026-10 – 2026 Standard Mileage Rates
12
Internal Revenue Service. 2025 Instructions for Form 4562 – Depreciation and Amortization (Including Information on Listed Property)
13
Internal Revenue Service. About Form 4797, Sales of Business Property
14
Internal Revenue Service. Publication 15-B (2026), Employer’s Tax Guide to Fringe Benefits
15
Office of the Law Revision Counsel. 26 U.S. Code 6662 – Imposition of Accuracy-Related Penalty on Underpayments