Frequently Asked Tax Questions
Sale or Trade of Business, Depreciation, Rentals - Depreciation &
Recapture
Rev. date: 01/15/2013
The acquisition cost of a computer purchased for business use:
- Can be expensed under Internal Revenue Code section 179, if qualified, by electing to recover all or part of the cost up to a dollar limit, by deducting the cost in the year you place the computer in service, and, if there is any remaining cost, it is depreciated over 5 years. If there is any remaining cost and if the computer is eligible for the 50-percent special depreciation allowance in the year you place the computer in service, 50% of the remaining cost is depreciated in the year you place the computer in service and the remaining 50% is depreciated over 5
years.
- Can be depreciated over a 5-year recovery period, if you elect not to expense any of the cost under section
179.
- May be eligible for the 50-percent special depreciation allowance in the year you place the computer in service if the computer meets certain conditions and the remaining cost is depreciated over 5 years, if you elect not to expense any of the cost under section
179.
Note:
The American Taxpayer Relief Act of 2012 enhances the section 179 expense deduction. For tax years beginning in 2012, the maximum section 179 deduction you can elect for section 179 property placed in service during the tax year is limited to $500,000. Taxpayers must reduce this limit when the cost of the section 179 property placed in service for the year exceeds
$2,000,000.
Rev. date: 12/21/2012
To be depreciable, the property must:
- Be owned by you
- Be used in your trade or business or income producing
activity
- Be something that has a determinable useful life
- Be expected to last more than one 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, such as patents, copyrights, and computer software.
Rev. date: 12/21/2012
Many taxpayers find using the standard mileage rate an easier way to expense their vehicle. The standard mileage
rate:
- May be used in calculating your automobile expense and
- Already includes depreciation expense
Instead of the standard mileage rate, you can use the actual expense method. If you use this method, you need to figure depreciation for the
vehicle.
The business use of an automobile is claimed on:
- Line 9 and Part IV of
Schedule C (Form 1040) (PDF),
Profit or Loss From Business or, if eligible, line 2 of
Schedule C-EZ (Form 1040) (PDF),
Net Profit From Business, if you are a sole proprietor.
-
Form 2106 (PDF),
Employee Business Expenses or, if eligible, line 1 of
Form 2106-EZ (PDF),
Unreimbursed Employee Business Expenses, and then with other employee business expenses on line 21 of
Schedule A (Form 1040) (PDF),
Itemized Deductions.
Rev. date: 12/21/2012
If you qualify, for the part of your home that is a home office:
- You can claim depreciation up to the gross income limitation.
- The home office portion is depreciated over a recovery period of 39 years using the straight line method of depreciation and a mid-month
convention.
If you
do not claim
depreciation on that part of your home that is a home office, you are still
required to reduce the basis of your home for the allowable depreciation of that
part of your home that is a home office when reporting the sale of your home.
Rev. date: 12/21/2012
Replacements
of roof, rain gutters, windows and furnace on a residential rental property:
- Are capital improvements to the property because they are for betterments and/or restorations to the
property.
- Would be in the same class of property as the residential rental property to which they are
attached.
- Are generally depreciated over a recovery period of 27.5 years using the straight line method of depreciation and a mid-month convention since the property is residential rental
property.
Repairs, such as repainting the residential rental property:
- Are generally currently deductible expenses.
- Do not improve the property, but keep your property in an ordinarily efficient operating
condition.
Note:
Repainting your property, fixing gutters or floors, fixing leaks, plastering, and replacing broken windows are examples of repairs. If you make repairs as part of an extensive remodeling or restoration of your property and these repairs directly benefit or are incurred by reason of this restoration of your property, then the whole job is a capital improvement. In that case, you should capitalize and depreciate the repair costs as the same class of property that you have restored or remodeled as discussed
above.
Previous Page |
Table of Contents |
Next Page
