What kinds of property can be depreciated for tax purposes?
Only property used in a trade or business or to produce income can be depreciated. Additionally, the property must be something that wears out or becomes obsolete and it must have a determinable useful life substantially beyond the tax year. The kinds of property that can be depreciated include machinery, equipment, buildings, vehicles, and furniture. Depreciation is a very complex subject. For more information, refer to Tax Topic 704, Depreciation, or Publication 946, How to Depreciate Property, or Publication 534, Depreciating Property Placed in Service Before 1987.
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We replaced the roof on a residential rental property and need to know what to use for the classification and useful life to calculate depreciation?
Replacement of a roof on a residential rental property is considered to be a capital improvement to the structure. The roof would be in the class of residential rental property with a recovery period of 27.5 years using the straight line method of depreciation. For more information, refer to Publication 527, Residential Rental Property, and Publication 946, How to Depreciate Property.
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On residential rental property, would new windows and siding be considered a repair that could be deducted against income, or would they be capitalized as an improvement?
Replacement of windows and siding on a residential rental property is considered to be a capital improvement to the structure. The windows and siding would be in the class of residential rental property with a recovery period of 27.5 years using the straight line method of depreciation. For more information, refer to Publication 527, Residential Rental Property, and Publication 946, How to Depreciate Property.
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We have incurred substantial repairs to our rental property: new roof, gutters, windows, furnace, and outside paint. What are the IRS rules concerning depreciation?
Replacement of roof, rain gutters, windows, and furnace on a residential rental property is considered to be a capital improvement to the structure. The items would be in the class of residential rental property with a recovery period of 27.5 years using the straight line method of depreciation. For more information, refer to Publication 527, Residential Rental Property, and Publication 946, How to Depreciate Property.
Repairs, such as repainting the house, are current expenses. A repair keeps your property in good operating condition. It does not materially add to the value of your property or substantially prolong its life. Repainting your property inside or out, fixing gutters or floors, fixing leaks, plastering, and replacing broken windows are examples of repairs. If you make repairs as part of an extensive remodeling or restoration of your property, the whole job is an improvement and subject to depreciation.
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How many years do I depreciate a new furnace installed as an improvement on residential rental property and what method do I use to compute the depreciation?
Replacement of a furnace in a residential rental property is considered to be a capital improvement to the structure. The furnace would be in the class of residential rental property with a recovery period of 27.5 years using the straight line method of depreciation. For more information, refer to Publication 527, Residential Rental Property, and Publication 946, How to Depreciate Property.
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I purchased a snowblower and a lawn mower strictly for use at an apartment building I own. Can I elect section 179 depreciation to fully deduct the costs of the snowblower and lawn mower?
You cannot claim the section 179 deduction for property held to produce rental income (unless renting property is your trade or business). These assets are classified as 5-year property and must be depreciated as directed in Publication 527, Residential Rental Property, and Publication 946, How to Depreciate Property.
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I expensed equipment and furniture two years ago under section 179, but stopped doing business last year. Does any of this have to be recaptured and claimed as income, even though the items have not been sold?
If you claim a section 179 deduction for the cost of property and, in a year after you place the property in service, you do not use it predominantly for business, you may have to recapture part of the section 179 deduction. This can occur in any year during the recovery period for the property even though the items have not been sold. Refer to Publication 946, How to Depreciate Property, on how to calculate the recapture amount. The recapture amount is computed on part IV of Form 4797, Sale of Business Property, and is included as other income on line 6 of Form 1040, SCHEDULE C, Profit or Loss from Business (Sole Proprietorship).
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When an individual sells a rental building, what depreciation is being recaptured? Is it the amount of depreciation taken in the prior years or the depreciation left?
It is the amount of allowed or allowable depreciation which was taken in prior years.
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How do I recapture depreciation on rental property that has been sold?
If you dispose of residential rental property placed in service after 1986 (or after July 31, 1986, if the election to use MACRS was made), you would not have any depreciation to recapture. If you do have depreciation to recapture, use Form 4797, Sale of Business Property, to compute the amount of depreciation recapture.
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Can the entire acquisition cost of a computer that I purchased for my business be deducted as a business expense or do I have to use depreciation?
The computer that you purchased for your business would be reported on Form 4562, Depreciation and Amortization, Part V. A computer is depreciated over a 5-year period. If the computer is used more than 50% for business, then you also have an option to expense it in one year (a section 179 deduction) on the business portion, Form 4562 Part I if the business had taxable income at least as great as the section 179 deduction claimed. For more information on depreciation, refer to Publication 946, How to Depreciate Property.
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I purchased a computer last year to do online day trading part-time from home for additional income. Can I deduct or depreciate the cost of the computer or internet connection from my investment income?
You may deduct investment expenses (other than interest expenses) as miscellaneous itemized deductions on Form 1040, SCHEDULE A, Itemized Deductions. This would include depreciation on the portion of your computer used for investment purposes, and the portion of your internet access charges used for investment purposes. Use Form 4562, Depreciation and Amortization to compute the depreciation for the portion of your computer used for investment purposes. You cannot claim section 179 expensing of the computer since it is not a business asset.
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I purchased a computer to support my job related activities. I understand what percent of the computer I can deduct as an employee, but I do not understand if I can write off the entire allowed cost or if I have to depreciate it over a few years?
You can claim a depreciation deduction for a computer that you use in your work as an employee if its use is:
- For the convenience of your employer, and
- Required as a condition of your employment.
If you meet the above tests, you generally must depreciate your computer using the straight-line method. You cannot take a section 179 deduction for the item or claim an accelerated depreciation deduction unless you meet the more-than-50%-use test.
You meet the more-than-50%-use test if you use the computer more than 50% in your work. If you meet this test, you can take a section 179 deduction for the item and claim accelerated depreciation. The section 179 deduction and depreciation deductions are explained in Publication 946, How to Depreciate Property.
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I need to know the maximum deduction allowed for depreciation on a passenger vehicle purchased in 2000?
The maximum deduction that can be claimed for a passenger vehicle that was placed in service in 2000 is $3,060 for the first year, $4,900 for the second year, $2,950 for the third year, and $1,775 for the fourth and following years. For more information, refer to Car Expenses in Chapter 4, Local Transportation Expenses of Publication 463, Travel, Entertainment, Gift, and Car Expenses and Special Rule for Passenger Automobiles in Chapter 4, Listed Property, of Publication 946, How to Depreciate Property.
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What form and line do I deduct the 32.5 cents per mile on for my business travel and do I need to figure depreciation of the vehicle, too?
Expenses for your business use of a car or truck are claimed on line 10 of Form 1040, SCHEDULE C, Profit or Loss from Business (Sole Proprietorship). You may use either the standard mileage rate or the actual cost method in calculating your car or truck expenses. If you use the standard mileage rate, do not compute or deduct depreciation. Depreciation is an expense that is used with the actual cost method. You may use either the standard mileage rate or the actual cost method in calculating your car or truck expenses. For more information, refer to Publication 463, Travel, Entertainment, Gift, and Car Expenses.
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I have a home office. Can I deduct expenses like mortgage, utilities, etc. without deducting depreciation so that when I sell this house, the basis won't be affected?
If you have qualified business use of your home that entitles you to a depreciation deduction, you are required to reduce your basis in the home by the amount of depreciation allowed (deducted) or allowable (could have been deducted).
Whether you choose to deduct the depreciation on your current return(s) will not matter. For tax purposes, you will still be treated as if you had taken the allowable deduction, and your basis is reduced.
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If I have a rental property. Do I have to take depreciation on it?
You do not have to claim depreciation on your rental property on your tax return. However, when reporting the sale of the rental property you are required to make an adjustment for allowable depreciation regardless to whether or not it was taken. For more information, refer to Publication 544, Sale or Other Dispositions of Assets, and the Instructions for Form 4797, Sales of Business Property.
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In calculating depreciation on both my rental apartment building and its furniture, what depreciation type, asset class, depreciation method, and recovery period should be used?
An apartment is considered residential rental property. It is depreciated over 27.5 years under the modified accelerated cost recovery system (MACRS) using the general depreciation system (GDS) straight line method with a mid-month convention. Furniture in the rental property would be depreciated over 7 years using the MACRS, GDS 200% double declining method with a half-year convention. Publication 527, Residential Rental Property, contains the appropriate depreciation tables as does Publication 946, How to Depreciate Property. Attach Form 4562, Depreciation and Amortization, to your individual income tax return to claim the depreciation.
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