Publication 334 |
2001 Tax Year |
Depreciation
If property you acquire to use in your business is expected to last
more than one year, you generally cannot deduct the entire cost as a
business expense in the year you acquire it. You must spread the cost
over more than one tax year and deduct part of it each year on
Schedule C or C-EZ. This method of deducting the cost of
business property is called depreciation.
The discussion here is brief. You will find more information about
depreciation in Publication 946,
How To Depreciate Property.
What can be depreciated.
You can depreciate property if it meets all the following
requirements.
- It must be property you own.
- It must be used in business or held to produce income.
- It must have a useful life that extends substantially beyond
the year it is placed in service.
- It must be something that wears out, decays, gets used up,
becomes obsolete, or loses its value from natural causes.
What cannot be depreciated.
You cannot depreciate any of the following items.
- Property placed in service and disposed of in the same year.
- Inventory (explained in chapter 2).
- Land.
- Repairs and replacements that do not increase the value of
your property, make it more useful, or lengthen its useful life. You
can deduct these amounts on line 21 of Schedule C or line 2 of
Schedule C-EZ.
Depreciation method.
The method for depreciating most business and investment property
placed in service after 1986 is called the Modified Accelerated Cost
Recovery System (MACRS). MACRS is discussed in detail in Publication 946.
Section 179 deduction.
You can choose to deduct a limited amount of the cost of certain
depreciable property in the year you place the property in service.
This deduction is known as the "section 179 deduction." For more
information, see Publication 946.
It explains what property qualifies
for the deduction, what limits apply to the deduction, and when and
how to recapture the deduction.
Listed property.
Listed property is any of the following.
- Most passenger automobiles.
- Most other property used for transportation.
- Any property of a type generally used for entertainment,
recreation, or amusement.
- Certain computer and related peripheral equipment.
- Any cellular telephone (or similar telecommunications
equipment).
You must follow special rules and recordkeeping requirements when
depreciating listed property. For more information about listed
property, see Publication 946.
Form 4562.
Use Form 4562, Depreciation and Amortization, if you are
claiming any of the following.
- Depreciation on property placed in service during the
current tax year.
- A section 179 deduction.
- Depreciation on any listed property (regardless of when it
was placed in service).
If you have to use Form 4562, you must file Schedule C. You cannot
use Schedule C-EZ.
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