Increased section 179 deduction dollar limits. The maximum amount you can elect to deduct for most section 179 property you placed in service in 2006 is $108,000 ($143,000 for qualified enterprise zone, renewal community, and New York Liberty Zone (Liberty Zone) property). This limit is reduced by the amount by which the cost of the property placed in service during the tax year exceeds $430,000. See Dollar Limits under How Much Can You Deduct in chapter 2. For qualified section 179 Gulf Opportunity Zone (GO Zone) property, the maximum section 179 deduction and the $430,000 threshold are increased. See Dollar limits under Gulf Opportunity Zone (GO Zone) Property in chapter 2.

Limited applicability of special depreciation allowance. You may be able to claim a special depreciation allowance for certain aircraft and certain property with a long production period placed in service or manufactured before January 1, 2007, in areas affected by Hurricanes Katrina, Rita, or Wilma. See Claiming the Special Depreciation Allowance in chapter 3.

Depreciation limits on business vehicles. The total section 179 deduction and depreciation you can deduct for a passenger automobile (that is not an electric vehicle or a truck or van) you use in your business and first placed in service in 2006 is $2,960. The maximum deduction for an electric vehicle is $8,980. The maximum deduction you can take for a truck or van you use in your business and first placed in service in 2006 is $3,260. See Maximum Depreciation Deduction in chapter 5.

Property classification for qualified leasehold improvement and restaurant property. Qualified leasehold improvement property and qualified restaurant property placed in service before January 1, 2008, will be treated as 15-year property under MACRS. See Which Property Class Applies Under GDS in chapter 4.

Recovery periods for Indian Reservation property. The shorter recovery periods for qualified property placed in service on an Indian reservation has been extended and will apply to property placed in service before January 1, 2008. See Indian Reservation Property under Which Recovery Period Applies in chapter 4.

Bonus depreciation for qualified cellulosic biomass ethanol plant property. A 50% special depreciation allowance is available for qualified cellulosic biomass ethanol plant property placed in service after December 20, 2006. See Qualified Cellulosic Biomass Ethanol Plant Property in chapter 3.

Amortization of musical compositions or copyrights to musical compositions. You can elect to amortize certain expenses paid or incurred in creating or acquiring musical compositions or copyrights to musical compositions over a 5-year period instead of depreciating the property using the income forecast method. See Income Forecast Method in chapter 1.

Depreciation limits on electric vehicles. The higher maximum depreciation deduction for a passenger automobile that is an electric vehicle applies to electric vehicles placed in service before January 1, 2007.

Limited reduction in Liberty Zone tax benefits. The special depreciation allowance for qualified New York Liberty Zone property applies to property placed in service before January 1, 2007 (except for qualified nonresidential real property and qualified residential rental property).

Photographs of missing children. The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child.

This publication explains how you can recover the cost of business or income-producing property through deductions for depreciation (for example, the special depreciation allowance and deductions under the Modified Accelerated Cost Recovery System (MACRS)). It also explains how you can elect to take a section 179 deduction, instead of depreciation deductions, for certain property, and the additional rules for listed property.