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Depreciation

Depreciation – Depreciable And Amortizable Assets #101 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. It is an allowance for the wear and tear, deterioration, or obsolescence of the property.

Depreciation – First-Year Expensing And Timing of Purchase #102 Section 179 of the IRS Tax Code allows a small business to deduct, for the current tax year, the full purchase price of financed or leased equipment that qualifies for the deduction. The equipment purchased or leased must be within the specified dollar limits of section 179, and the equipment must be placed into service in the same tax year that the deduction is being taken...

Depreciation Methods, #103 Summary The depreciation method that you use for any particular asset is determined at the time you first place that asset into service. Whatever rules or tables are in effect must be followed as long as you own the property. Since Congress has changed the depreciation rules many times over the years, you may have to use a number of different depreciation methods if you have business property that was acquired at different times. …

Claiming Depreciation Deductions #104 If you are completing your own tax returns, you may require a more detailed explanation of exactly how to report depreciation deductions. In most cases, your depreciation deductions will be entered on IRS Form 4562, “Depreciation and Amortization,” and then the total amount will be carried over to Line 13 of your Schedule C if you are a sole proprietor or to Form 1120 for a C corporation, Form 1120S for an S corporation, or to Form 1065 for a partnership or LLC...

Recapture Rules, #105 Summary IRS Publication 946 defines depreciation as a decrease in the value of property over the time the property is being used. The depreciation accrues during the ownership of the asset, and upon the sale of the asset, must be “recaptured” as part of the gain. As your business assets decline in value, the tax code allows you to take deductions against your income to reflect this change. …