Sale or Trade of Business, Depreciation, Rentals

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Frequently Asked Tax Questions

Sale or Trade of Business, Depreciation, Rentals - Depreciation & Recapture

Rev. date: 1/2009

Can the entire acquisition cost of a computer that I purchased for my business be deducted as a business expense or do I have to use depreciation?

Business Expenses
Computer
Depreciation
Depreciation Deduction
Depreciation and Amortization
Depreciation and Section 179 Deduction
How to Depreciate Property
Listed Property
Rental Property

The acquisition cost of a computer purchased for business use:

Can be expensed under Code section 179 in the first year, if qualified, by electing to recover all or part of the cost up to a dollar limit, by deducting it in the year you place the property in service, and any remaining cost is depreciated over 5 years.
Can be depreciated over a 5-year recovery period.
May be eligible for a 50-percent special depreciation allowance if the computer meets certain conditions.

NOTE: Increased section 179 limits. The maximum section 179 deduction you can elect for qualified property placed in service in 2008 has increased to $250,000 ($285,000, for qualified zone and qualified renewal property). This limit is reduced by the amount by which the cost of qualified section 179 property placed in service during the tax year exceeds $800,000. 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. You may also see the IRS site for Code Section 179 for the expanded definition.

Rev. date: 1/2009

What kinds of property can be depreciated for tax purposes?

Business Expenses
Computer
Depreciation Deduction
Depreciation and Amortization
How to Depreciate Property
Listed Property

To be depreciable, the property must:

Be used in a trade or business or in an income producing activity
Be something that wears out or becomes obsolete
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).

Rev. date: 1/2009

I have a home office. Can I deduct expenses like mortgage, utilities, etc., but not deduct depreciation so that when I sell this house, the basis won't be affected?

Basis
Business Expenses
Cost Basis
Depreciation Deduction
Depreciation and Amortization
Home Used for Business
How to Depreciate Property
Sales and Other Dispositions of Assets
Selling Your Home

If you qualify, for the part of your home that is a home office:

You can claim depreciation.
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: 1/2009

We have incurred substantial repairs to our rental property: new roof, gutters, windows, furnace, and outside paint. What are the IRS rules concerning depreciation?

Apartment Building
Business Expenses
Depreciation Deduction
Depreciation and Amortization
Depreciation of Rental Property
Rental
Rental Property
Repairs and Improvements
Residential Rental Property (Including Rental of Vacation Homes)
Supplemental Income and Loss

Replacements of roof, rain gutters, windows, and furnace on a residential rental property:

Are capital improvements to the structure because they materially add to the value of your property or substantially prolong its life.
Would be in the same class of property as the 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 currently deductible expenses.
Keeps your property in good operating condition but does not materially add to the value of your property or substantially prolong its life.

NOTE: Repainting your property inside or, 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, the whole job is an 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.

Rev. date: 1/2009

What form and line do I deduct the standard mileage rate for my business travel and do I need to figure depreciation of the vehicle, too?

Business Expenses
Depreciation and Amortization
Employee Business Expenses
Listed Property
Out-of-town Transportation
Profit or Loss from Business (Sole Proprietorship)
Standard Mileage Rate
Standard mileage rate not allowed.
Travel, Entertainment, Gift, and Car Expenses

The standard mileage rate:

May be used in calculating your car or truck expense
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 a car or truck is claimed on:

Line 9 and Part IV of Form 1040, Schedule C (PDF), Profit or Loss from Business or, if eligible, line 2 of Form 1040, Schedule C-EZ (PDF), 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 20, Form 1040 Schedule A (PDF), Itemized Deductions.


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