Legal Definitions - listed property

In tax law, listed property refers to specific types of assets that are commonly used for both business and personal purposes. Because these assets have a dual-use nature, the Internal Revenue Service (IRS) imposes special rules to determine how their costs can be deducted for tax purposes, particularly regarding depreciation.

The IRS identifies certain categories of assets as listed property, which primarily include:

• Transportation property (e.g., cars, trucks, airplanes)
• Entertainment, recreation, or amusement property (e.g., yachts, corporate boxes)
• Certain other types of property specified by regulations (e.g., some computers, photographic equipment, or cellular phones, though specific rules can change).

The key challenge with listed property is distinguishing its business use from its personal use. To qualify for more favorable tax deductions, a listed property must pass the "predominant-use test." This means the asset must be used more than 50% for business purposes during the tax year. If it passes this test, the business portion of its cost can be depreciated (deducted over time) using standard methods, often resulting in larger deductions sooner. If business use is 50% or less, the asset is considered not predominantly used for business, and its depreciation must be calculated using a slower, less favorable method.

Due to these strict rules, taxpayers who own listed property are required to keep meticulous records. These records must clearly document the extent of business use versus personal use, as well as all related expenses like purchase cost, maintenance, and insurance. This detailed record-keeping is crucial for substantiating any deductions claimed.

Here are a few examples illustrating how listed property rules apply:

• Example 1: The Professional Photographer's Drone

  A professional real estate photographer purchases a high-end drone to capture aerial images and videos for client listings. However, on some weekends, the photographer also uses the drone for personal hobby flying and capturing landscape shots for their own enjoyment. This drone would be considered listed property because it serves both a business function (client work) and a personal function (hobby). To claim the full business depreciation, the photographer must meticulously log flight times, distinguishing between client projects and personal flights, to prove that the drone is used more than 50% for business purposes during the tax year.

• Example 2: The Consultant's Luxury SUV

  A management consultant owns a luxury SUV that they primarily use for traveling to client sites, attending industry conferences, and meeting with potential clients. However, the consultant also uses the SUV for family vacations and personal errands on weekends. This SUV falls under the category of transportation property and is therefore considered listed property. The consultant must maintain detailed mileage logs, noting business trips versus personal travel, along with records of fuel, maintenance, and insurance costs. This documentation is essential to demonstrate that the SUV's business use exceeds 50% to qualify for accelerated depreciation deductions.

• Example 3: The Company's Entertainment Suite

  A marketing firm leases a premium suite at a local sports arena, primarily to entertain key clients, build relationships, and host corporate events. On occasion, when the suite is not being used for business purposes, the firm's owner allows their family or close friends to use it for personal enjoyment. This entertainment suite is classified as listed property. The firm must keep precise records of each time the suite is used, noting whether it was for client entertainment (business use) or personal use by the owner's family. This record-keeping is vital to ensure that the business use predominates (over 50%) to justify the tax deductions for the lease cost and associated expenses.