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Tuesday, October 4, 2016

Depreciation Issues


Depreciation is an annual income tax deduction that allows you to recover the cost or other basis of certain property over the time you use the property in your business.


To be depreciable, the property must meet all of the following requirements:

·It must be property you own.

·It must be used in your trade or business.

·It must have a determinable useful life.

·It must be expected to last more than one year.


Examples include: Automobiles, Buildings, Equipment, Furniture, Fixtures, Intangible Assets, and Structures.


NOTE: Land is never depreciable.


The tax laws require business owners to keep proper records showing the business, investment, and personal use of property. Only the business and investment use is depreciable.


Proper records include:

·Description of the property

·How the property was acquired       

·Property's cost or other basis

·Business and Investment use percentages


Depreciation begins when you place the property in service, meaning when the property is ready and available for its specific business use.


Depreciation ends when you have fully recovered your cost or other basis or you permanently withdraw it from use due to:

·Sale or exchange

·Convert to personal use


·Property is destroyed or scrapped.


The tax laws use various depreciation rules for specific types of property. IRS Publication 946 provides detailed information regarding depreciation issues.



This article was written by Donald M. Scherzi, CPA, CFP, LLC

Mike Lupo, SCORE Counselor


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