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Depreciation

Depreciable And Amortizable Assets, #101 Almost every business must invest in some major equipment, vehicles, machinery, or furniture in order to operate. Major assets that your business uses for longer than a year are called "capital assets" and are subject to special tax treatment. You generally can't deduct the whole cost of acquiring a capital asset for your business in the year you acquire it because an accounting goal is to accurately measure a business's gross income, expenses, and net…

Depreciation – First-Year Expensing and Timing of Purchase, #102 This brief considers which assets can be written off in the first year and how the timing of a purchase affects depreciation. First-year expensing is also known as a section 179 deduction. The maximum amount you can deduct for most section 179 property placed in service in 2005 is $105,000. The limit is reduced by the amount by which the cost of the property exceeds $420,000.

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 Summary 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…

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. …