When Depreciation Begins & Ends

Words you may need to know (see Glossary):

• Basis
• Exchange
• Placed in service

You begin to depreciate your property when you place it in service for use in your trade or business or for the production of income. You stop depreciating property either when you have fully recovered your cost or other basis or when you retire it from service, whichever happens first.

Placed in Service

For depreciation purposes, you place property in service when it is ready and available for a specific use, whether in a trade or business, the production of income, a tax-exempt activity, or a personal activity. Even if you are not using the property, it is in service when it is ready and available for its specific use.

Example 1. You bought a home and used it as your personal home several years before you converted it to rental property. Although its specific use was personal and no depreciation was allowable, you placed the home in service when you began using it as your home. You can claim a depreciation deduction in the year you converted it to rental property because its use changed to an income-producing use at that time.

Example 2. You bought a planter for your farm business late in the year after harvest was over. You take a depreciation deduction for the planter for that year because it was ready and available for its specific use.

Cost or Other Basis Fully Recovered

You have fully recovered your cost or other basis when you have taken section 179 and depreciation deductions equal to your cost or investment in the property.

Purpose of Form 4562

Retired From Service

You stop depreciating property when you retire it from service. You retire property from service when you permanently withdraw it from use in a trade or business or from use in the production of income.

You can retire property from service in the following ways.

• Sale or exchange.
• Abandonment.
• Destruction.

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