Frequently Asked Tax Questions
Sale or Trade of Business, Depreciation, Rentals - Depreciation
& Recapture
Rev. date: 3/29/2011The 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, if it is
decided not to expense any of the cost under section 179.
-
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 (section
179 property) placed in service in 2009 is $250,000 ($285,000, for
qualified zone and qualified renewal property). This limit is reduced by the
amount by which the cost of section 179 property placed in service
during the tax year exceeds $800,000. You may also see the IRS site for
Code Section 179 for the expanded definition.
Rev. date: 1/1/2011To be depreciable, the property must:
- Be owned by you
- Be used in your trade or business or income producing
activity
- Be something that wears out or becomes obsolete
- Be expected to last 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: 1/1/2011The standard mileage rate:
- May be used in calculating your automobile 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 an automobile 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 ,
Itemized Deductions.
Rev. date: 1/31/2011If you qualify, for the part of your home that is a home office:
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: 1/1/2011Replacements
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:
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, 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.
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