Special Depreciation Allowance

You can claim the special depreciation allowance (an additional 30% depreciation deduction) for new property that you acquire before September 11, 2004, and place in service for your business generally before January 1, 2005, if you meet the other requirements for qualified property covered in chapter 5. Accordingly, you will generally no longer be able to claim the special depreciation allowance for the qualified property if you acquire it after September 10, 2004, or place it in service for your business after December 31, 2004. However, you will be able to claim the special Liberty Zone depreciation allowance (an additional 30% depreciation deduction) for most qualified property if you place it in service in the Liberty Zone after December 31, 2004, and generally before January 1, 2007, provided you meet the other requirements for qualified Liberty Zone property covered in chapter 5.

Extension of Placed in Service Date

To qualify for the special depreciation allowance, your property must meet certain tests, including the placed in service date test, as well as the other requirements covered in chapter 5 of this publication. To meet the placed in service date test, your property must generally be placed in service for use in your trade or business or for the production of income after September 10, 2001, and before January 1, 2005. However, certain property placed in service before January 1, 2006, may meet this test. Transportation property and property with a recovery period of 10 years or longer meet the test if one of the following applies.

• The property has an estimated production period of more than 2 years.
• The property has an estimated production period of more than 1 year and it costs more than $1 million.

Transportation property is any tangible personal property used in the trade or business of transporting persons or property.

For property that qualifies for the special depreciation allowance solely because of the one-year extension of the placed in service date, only the part of the basis attributable to manufacture, construction, or production before September 11, 2004, is eligible for the special depreciation allowance.

Special Liberty Zone Depreciation Allowance for New and Used Property

You can claim the special Liberty Zone depreciation allowance (an additional 30% depreciation deduction) for used property that you acquire after September 10, 2001, if the property meets the requirements listed under Qualified Liberty Zone Property in chapter 5 of this publication. You will be able to claim the allowance for both new and used property that you acquire after September 10, 2004, provided the property meets the other requirements for qualified Liberty Zone property.

Depreciation of Property Used on Indian Reservations

The special depreciation rules that apply to qualified property used on an Indian reservation were scheduled to expire for property placed in service after 2003. These special rules have been extended to include property placed in service in 2004. For more information about these rules, see Publication 946, How To Depreciate Property.

Indian Employment Credit Extended

The Indian employment credit that was scheduled to expire for tax years beginning after 2003 has been extended to include a tax year beginning in 2004. For more information about this credit, see Publication 954, Tax Incentives for Empowerment Zones and Other Distressed Communities.

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