Business Deductions
- Amortization
- Business Losses and Net Operating Losses
- Car and Truck Expenses
- Day-Care Services
- Depreciating Business Property
- Depreciating Your Car
- Domestic Production Activities Deduction
- Health Insurance Deduction
- Home Office Deduction
- Meal and Entertainment Expenses
- Organizational Costs and Start-up Costs
- Qualified Plan Awards
- Schedule C Expenses
- Section 197 Intangibles
- Should You Sell or Trade in Your Car?
- Start-up Costs
- Travel Expenses
More Tax Topics
- Business Structures
- Hiring Workers
- Retirement
- Top Tax Myths
- Per Diem Rates - IRS Publication 1542 Oct 2011 for Travel Within the Continental U.S (for employers who pay a per diem allowance to employees)
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Need Some Deductions for 2011?
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Updated for 2011
Small Business Deductions: Depreciation
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Types of Property
Property may be tangible personal property, tangible real property, and intangible property.
- The term personal property, in the legal sense, refers to property that is moveable.
- Real property, in the legal sense, refers to property that is not moveable (e.g., land, buildings).
- Intangible property refers to property that has no physical form (e.g., copyright, patent).
Examples:
- Tangible personal property:
- Answering machines
- Bookshelves
- Cars
- Cell phones
- Chairs
- Computers
- Copiers
- Desks
- Desk accessories
- Farming equipment
- Fax machines
- File cabinets
- Floor modeling and displays
- Machinery
- Musical instruments (if you're a musician)
- Printers
- Professional libraries are depreciable if their value decreases over time
- Signs
- Software purchased off-the-shelf (if it has a useful life of one year or less, like tax software, you can take an immediate deduction).
- Telephones
- Tools (if your business is a trade)
- Trucks
- Vacuum cleaners
- Tangible real property:
- Buildings, such as residential rental property and office buildings.
- Intangible property:
- Copyrights, patents and computer software.
Software:
- Useful life of one year or less: The cost of off-the-shelf software that has a useful life of one year or less if deducted in full in the first year.
- Useful life over one year: If you purchased software off the shelf between 2003-2008 it is eligible for first-year expensing (Section 179). Alternatively, you may depreciate it over 36 months.
- Installed in computer: Software already installed in a computer you purchase is not deducted separately unless the cost is stated separately. The cost of the computer is subject to regular depreciation rules.
- Acquired in the acquisition of a business (Section 197 intangible):
- If software is acquired in the acquisition of a business it is eligible for first-year expensing or depreciation over 36 months if it meets the following three tests:
- It is readily available to the public.
- It is not subject to an exclusive license.
- It has not been substantially changed.
- If these tests are not met, the software is classified as Section 197 intangible property and must be amortized over 15 years. To determine the annual amortization, divide the cost by 15.
- If software is acquired in the acquisition of a business it is eligible for first-year expensing or depreciation over 36 months if it meets the following three tests:
Next:
Depreciation: Property that May be Depreciated; Patents and Copyrights
Related Links
- What is Depreciation?
- Property that May Not be Depreciated.
- Listed Property
- Investment Use Property
- Depreciation Methods (MACRS)
- Form 4562, Depreciation and Amortization
- How the General Depreciation System and Alternative Depreciation System Differ
- Depreciation Conventions
- Recovery Periods, Class Life, Examples of Property
- Points to Keep in Mind When Depreciating Property
- Converting Personal Use Property to Business Use
Copyright © 2008-2012 Larry Villano. All rights reserved.