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taxmap/pubs/p946-002.htm#en_us_publink1000107319

What Property Cannot Be Depreciated?(p5)


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Words you may need to know (see Glossary)

Certain property cannot be depreciated. This includes land and certain excepted property.
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Land(p6)


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You cannot depreciate the cost of land because land does not wear out, become obsolete, or get used up. The cost of land generally includes the cost of clearing, grading, planting, and landscaping.
Although you cannot depreciate land, you can depreciate certain land preparation costs, such as landscaping costs, incurred in preparing land for business use. These costs must be so closely associated with other depreciable property that you can determine a life for them along with the life of the associated property.
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Example.(p6)

You constructed a new building for use in your business and paid for grading, clearing, seeding, and planting bushes and trees. Some of the bushes and trees were planted right next to the building, while others were planted around the outer border of the lot. If you replace the building, you would have to destroy the bushes and trees right next to it. These bushes and trees are closely associated with the building, so they have a determinable useful life. Therefore, you can depreciate them. Add your other land preparation costs to the basis of your land because they have no determinable life and you cannot depreciate them.
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Excepted Property(p6)


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Even if the requirements explained in the preceding discussions are met, you cannot depreciate the following property.
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Certain term interests in property.(p6)


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You cannot depreciate a term interest in property created or acquired after July 27, 1989, for any period during which the remainder interest is held, directly or indirectly, by a person related to you. A term interest in property means a life interest in property, an interest in property for a term of years, or an income interest in a trust.
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Related persons.(p6)
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For a description of related persons, see Related persons on page 8. For this purpose, however, treat as related persons only the relationships listed in items (1) through (10) of that discussion and substitute "50%" for "10%" each place it appears.
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Basis adjustments.(p6)
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If you would be allowed a depreciation deduction for a term interest in property except that the holder of the remainder interest is related to you, you generally must reduce your basis in the term interest by any depreciation or amortization not allowed.
If you hold the remainder interest, you generally must increase your basis in that interest by the depreciation not allowed to the term interest holder. However, do not increase your basis for depreciation not allowed for periods during which either of the following situations applies.
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Exceptions.(p6)
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The above rules do not apply to the holder of a term interest in property acquired by gift, bequest, or inheritance. They also do not apply to the holder of dividend rights that were separated from any stripped preferred stock if the rights were purchased after April 30, 1993, or to a person whose basis in the stock is determined by reference to the basis in the hands of the purchaser.