The cost of a personal computer is generally a personal expense that is not deductible. However, if the school includes the cost of school-supplied computers as part of the cost of tuition or as a fee required for attendance or enrollment, and bill students for computer software that students cannot obtain elsewhere, your expenses may qualify as an expense towards either the Lifetime Learning Credit or Hope Credit. For more information, refer to Publication 970, Tax Benefits for Education, Chapters 2 and 3.

The entire acquisition cost of a computer purchased for business use can be expensed under Code section 179 in the first year if qualified, or depreciated over a 5-year recovery period. Under section 179, you can elect to recover all or part of the cost of certain qualifying property, up to a dollar limit, by deducting it in the year you place the property in service. You can elect to expense the cost of qualifying property instead of recovering the cost by taking depreciation.

Depreciation and Section 179 Deduction

Increased section 179 limits. The maximum section 179 deduction you can elect for qualified section 179 property placed in service in 2007 has increased to $125,000 ($160,000, for qualified zone and qualified renewal property). This limit is reduced by the amount by which the cost of qualified section 179 property placed i n service during the tax year exceeds $500,000. For qualified section 179 Gulf Opportunity (Go) Zone property, the maximum section 179 deduction is higher than the deduction for most other section 179 property.

See Publication 946, How to Depreciate Property for additional information on the special deduction.

You may also see the IRS site for Code Section 179 for the expanded definition.

References:

• Publication 535, Business Expenses

Only property used in a trade or business or in an income producing activity can only 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. Some intangible property may also be depreciable (e.g. patents). Depreciation is a complex topic. For more information, refer to Tax Topic 704, Depreciation, or Publication 946, How to Depreciate Property , or Publication 534 (PDF), Depreciating Property Placed in Service Before 1987.

A Sole Proprietor's business use of a car or truck is claimed on line 9 and Part IV of Form 1040, Schedule C (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 standard mileage rate but not both. 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 20, Form 1040, Schedule A&B (PDF) Itemized Deductions. For more information, refer to Publication 463, Travel, Entertainment, Gift, and Car Expenses, and Publication 535, Business Expenses .