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Autos, Computers, Electronic Devices (Listed Property)

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My university required each incoming freshman to come to school with their own computer. Is there any way to deduct the cost of the computer from my tax liability?

The cost of a personal computer is generally a personal expense that is not deductible. However, if the school bills everyone, as a condition of attendance or enrollment for proprietary computer devices and/or software available no where else, then this may qualify as an expense towards either the Lifetime Learning Credit or Hope Credit. For more information, refer to Publication 970 (PDF), Tax Benefits for Higher Education.

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11.1 Sale or Trade of Business, Depreciation, Rentals: Depreciation & Recapture
What kinds of property can be depreciated for tax purposes?

Only property used in a trade or business or in an income production activity 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, but are not limited to, machinery, equipment, buildings, vehicles, and furniture. Depreciation is a complex topic. For more information, refer to Tax Topic 704, Depreciation, or Publication 946 (PDF), How to Depreciate Property, or Publication 534 (PDF), Depreciating Property Placed in Service Before 1987.

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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?

A deduction for depreciation of a computer for business use, whether all at once or over a recovery period, is reported on Form 4562 (PDF), Depreciation and Amortization, Part V. Generally, is depreciated over a 5-year period. However, if the computer is used more than 50% for business, then you may also have an option to expense the business portion in as little as one year (as a section 179 deduction) using Form 4562 Part I (as well as Part V). Taxable income from the active conduct of any trade or business must be at least as great as the section 179 deduction claimed. Dollar limits and investment limits also apply to the section 179 deduction. For more information on depreciation and the section 179 deduction, refer to Publication 946 (PDF), 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 (PDF), line 22, 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. These deductions must be reduced by 2% of your adjusted gross income. Use Form 4562 (PDF), Depreciation and Amortization, to compute the depreciation for the portion of your computer used for investment purposes. Unless the computer is used more than 50% for business purpose (as opposed to investment purposes), you cannot claim section 179 expensing of the computer or claim accelerated depreciation for it. For more information, refer to "Listed Property" in Publication 946 (PDF), How to Depreciate Property.

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I purchased a computer to support my job-related activities. As an employee, can I write-off the entire allowed cost or will 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.
You cannot take a section 179 deduction for the item or claim accelerated depreciation unless your use of the computer is more than 50% business or job-related use (and you meet the two conditions listed above).

Section 179 deductions and accelerated depreciation methods are explained in Publication 946 (PDF), How to Depreciate Property.

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I need to know the maximum deduction allowed for depreciation on a passenger vehicle purchased in 2002?

The maximum deduction that can be claimed for a used passenger vehicle or one that is Liberty Zone property that was placed in service in 2002 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 a new passenger vehicle placed in service in 2002 (and not Liberty Zone property), the maximum deduction is $4,600 for the first year. Subsequent year limits are the same as for used vehicles. Increase deductions are also available for electric vehicles see Supplement to Publication 946 (PDF), How to Depreciate Property. For more information, refer to Car Expenses in Chapter 4, Local Transportation Expenses of Publication 463 (PDF), Travel, Entertainment, Gift, and Car Expenses and Special Rule for Passenger Automobiles in Chapter 4, Listed Property, of Publication 946 (PDF), How to Depreciate Property.

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What form and line do I deduct the 36.5 cents per mile on for my business travel and do I need to figure depreciation of the vehicle, too?

A Sole Proprietor's business use of a car or truck is claimed on line 10 of Form 1040 (PDF), Schedule C, Profit or Loss from Business or, if eligible, line 2 of Form 1040, Schedule C-EZ (PDF), Net Profit from Business. You may use either the actual expense method in calculating your car or truck expense or, if eligible, the 2002 standard mileage rate of 36.5 cents per mile. Depreciation expense is already included in this standard mileage rate. Depreciation is only calculated as a separate expense when using the actual expense method. Deductible employee business use of a car or truck may be taken on Form 2106 (PDF), Employee Business Expenses, or if, eligible, line 1 of Form 2106-EZ (PDF), Unreimbursed Employee Business Expenses. The car and truck expenses are then taken with other employee business expenses on line 22, Form 1040, Schedule A&B (PDF) Itemized Deductions. For more information, refer to Publication 463 (PDF), Travel, Entertainment, Gift, and Car Expenses, and Publication 535 (PDF), Business Expenses.

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