Business Finance Articles

Depreciation is an income tax deduction that lets you recover the cost of certain property. To qualify as a depreciation deduction, property must meet the following criteria:

• You must own the property.
• You must use the property in business or in an income-producing activity.
• The property must have a useful life of more than one year.

Most types of tangible property and equipment are depreciable except for land. In addition, some intangible property, such as patents and copyrights, can be depreciated. You may also depreciate the cost of capital improvements on leased property.

Depreciation begins when you place the property in service for your business and ends when you have fully recovered the property’s cost or when it is retired from service, whichever happens first. If you use the property for both business and personal purposes, you can deduct depreciation based only on your business use of the property.

IRS Form 4562, Depreciation and Amortization, is the form used to report depreciation on your tax return.

Straight-line depreciation is the most common method of depreciating assets. However, in order to reduce tax liability as soon as possible, some accountants use other approved methods to accelerate depreciation and record larger amounts of depreciation in the early years of an asset’s life. Check the regulations published by the Internal Revenue Service and your state taxing authority for specific rules regarding depreciation and methods of calculating depreciation for various types of assets.