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A Brief Overview of DepreciationClick here for information
on depreciating Depreciation is an income tax deduction that allows a taxpayer to recover the cost or other basis of certain property. It is an annual allowance for the wear and tear, deterioration, or obsolescence of the property. Most types of tangible property (except, land), such as buildings, machinery, vehicles, furniture, and equipment are depreciable. Likewise, certain intangible property, such as patents, copyrights, and computer software is depreciable. In order for a taxpayer to be allowed a depreciation deduction for a property, the property must meet all the following requirements:
Even if a taxpayer meets the preceding requirements for a property, a taxpayer cannot depreciate the following property:
Depreciation begins when a taxpayer places property in service for use in a trade or business or for the production of income. The property ceases to be depreciable when the taxpayer has fully recovered the property’s cost or other basis or when the taxpayer retires it from service, whichever happens first. A taxpayer must identify several items to ensure the proper depreciation of a property, including:
The Modified Accelerated Cost Recovery System (MACRS) is the proper depreciation method for most property. Additional information about MACRS, and the other components of depreciation are in Publication 946, How to Depreciate Property. A taxpayer must use Form 4562, Depreciation and Amortization, to report depreciation on a tax return. Form 4562 is divided into six sections and the Instructions for Form 4562 contain information on how, and when to fill out each section. For more information, please visit the IRS website at www.irs.gov. Click here for information
on depreciating
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