Publication 587 |
2001 Tax Year |
Business Furniture & Equipment
This section discusses the depreciation and section 179 deductions
you may be entitled to take for furniture and equipment you use in
your home for business or work as an employee. These deductions are
available whether or not you qualify to deduct expenses for the
business use of your home.
This section explains the different rules for each of the
following.
- Listed property.
- Property bought for business use.
- Personal property converted to business use.
Listed Property
If you use certain types of property, called listed property,
in your home, special rules apply. Listed property includes any
property of a type generally used for entertainment, recreation, and
amusement (including photographic, phonographic, communication, and
video recording equipment). Listed property also includes computers
and related equipment unless they are used in a qualifying office in
your home. If you use your computer in a qualifying office in your
home, see Property Bought for Business Use, later.
More-than-50%-use test.
If you bought listed property and placed it in service during the
year, you must use it more than 50% for business (including work as an
employee) to claim a section 179 deduction or an accelerated
depreciation deduction.
If your business use of listed property is 50% or less, you cannot
take a section 179 deduction and you must depreciate the property
using the Alternate Depreciation System (ADS) (straight line method).
For more information on ADS, see chapter 3 in Publication 946.
Listed property meets the more-than-50%-use test for any year if
its qualified business use is more than 50% of its total use. You must
allocate the use of any item of listed property used for more than one
purpose during the year among its various uses. You cannot use the
percentage of investment use as part of the percentage of qualified
business use to meet the more-than-50%-use test. However, you do use
the combined total of business and investment use to figure your
depreciation deduction for the property.
Example 1.
Sarah does not qualify to claim a deduction for the business use of
her home, but she uses her home computer 40% of the time for a
business she operates out of her home. She also uses the computer 50%
of the time to manage her investments. Sarah's home computer is listed
property because it is not used in a qualified office in her home.
Because she does not use the computer more than 50% for business, she
cannot elect a section 179 deduction. She can use her combined
business/investment use (90%) to figure her depreciation deduction
using ADS.
Example 2.
If Sarah uses her computer 60% of the time for her business and 30%
for managing her investments, her computer meets the more-than-50%-use
test. She can elect a section 179 deduction. She can use her combined
business/investment use (90%) to figure her depreciation deduction
using the General Depreciation System (GDS).
Employee.
If you use your own listed property (or listed property you rent)
in your work as an employee, the property is business-use property
only if you meet the following requirements.
- The use is for your employer's convenience.
- The use is required as a condition of your
employment.
"As a condition of your employment" means the use of the
property is necessary for you to properly perform your work. Whether
the use of the property is required for this purpose depends on all
the facts and circumstances. Your employer does not have to tell you
specifically to use the property. Nor is a statement by your employer
to that effect sufficient.
Years following the year placed in service.
If, in a year after you place an item of listed property in
service, you fail to meet the more-than-50%-use test for that item of
property, you may be required to do the following.
- Figure depreciation, beginning with the year you no longer
use the property more than 50% for business, using the straight line
method.
- Figure any excess depreciation (include any section 179
deduction on the property in figuring excess depreciation) and add it
to:
- Your gross income, and
- The adjusted basis of your property.
For more information, see Recapture of Excess
Depreciation under Do the Business-Use Limits Apply?
in Publication 946.
Reporting and recordkeeping requirements.
If you use listed property in your business, you must file Form
4562 to claim a depreciation or section 179 deduction. Begin with Part
V, Section A, of that form.
You cannot take any depreciation or section 179 deduction for the
use of listed property unless you can prove your business/investment
use with adequate records or sufficient evidence to support your own
statements.
To meet the adequate records requirement, you must maintain an
account book, diary, log, statement of expense, trip sheet, or similar
record or other documentary evidence that is sufficient to establish
business/investment use. For more information on what records to keep,
see What Records Must Be Kept? in chapter 4 of Publication 946.
Property Bought for Business Use
If you bought certain property to use in your business, you can do
any one of the following (subject to the limits discussed later).
- Elect a section 179 deduction for the full cost
of the property.
- Take part of the cost as a section 179 deduction
and depreciate the balance.
- Depreciate the full cost of the property.
Section 179 Deduction
You can claim the section 179 deduction for the cost of depreciable
tangible personal property bought for use in your trade or business.
You can choose how much (subject to the limit) of the cost you want to
deduct under section 179 and how much you want to depreciate. You can
spread the section 179 deduction over several items of property in any
way you choose as long as the total does not exceed the maximum
allowable. You cannot take a section 179 deduction for the basis of
the business part of your home.
You elect the section 179 deduction by completing Part 1 of Form
4562.
More information.
For more information on the section 179 deduction, see chapter 2 in
Publication 946.
Depreciation
Use Part II of Form 4562 to claim your deduction for depreciation
on property placed in service during the year. Do not include any
costs deducted in Part I (section 179 deduction).
Most business property used in a home office is either 5-year or
7-year property under MACRS.
- 5-year property includes computers and peripheral
equipment, typewriters, calculators, adding machines, and
copiers.
- 7-year property includes office furniture and
fixtures such as desks, files, and safes.
Under MACRS, you generally use the half-year convention, which
allows you to deduct a half year of depreciation in the first year you
use the property in your business. If you place more than 40% of your
depreciable property in service during the last 3 months of your tax
year, you must use the mid-quarter convention instead of the half-year
convention. See Publication 946
for an exception for 2001.
After you have determined the cost of the depreciable property
(minus any section 179 deduction taken on the property) and whether it
is 5-year or 7-year property, use the table, shown next, to figure
your depreciation if the half-year convention applies.
MACRS Percentage Table
for 5- and 7-Year Property
Using Half-Year Convention
Recovery Year |
5-Year Property |
7-Year Property |
1 |
20.00% |
14.29% |
2 |
32.00% |
24.49% |
3 |
19.20% |
17.49% |
4 |
11.52% |
12.49% |
5 |
11.52% |
8.93% |
6 |
5.76% |
8.92% |
7 |
|
8.93% |
8 |
|
4.46% |
See Publication 946
for a discussion of the mid-quarter convention
and for complete MACRS percentage tables.
Example.
During the year, Donald Kent bought a desk and three chairs for use
in his office. His total bill for the furniture was $1,975. His
taxable business income for the year was $3,000 without any deduction
for the office furniture. Donald can elect to do one of the following.
- Take a section 179 deduction for the full cost of the office
furniture.
- Take part of the cost of the furniture as a section 179
deduction and depreciate the balance.
- Depreciate the full cost of the office furniture.
The furniture is 7-year property. If Donald does not take a section
179 deduction, he multiplies $1,975, the cost of the furniture, by
14.29% (.1429) to get his depreciation deduction of $282.23.
Personal Property Converted to Business Use
If you use property in your home office that was used previously
for personal purposes, you cannot take a section 179 deduction for the
property. You can depreciate it, however. The method of depreciation
you use depends on when you first used the property for personal
purposes.
If you began using the property for personal purposes after 1986
and change it to business use in 2001, depreciate the property under
MACRS.
The basis for depreciation of property changed from personal to
business use is the lesser of the following.
- The adjusted basis of the property on the date of
change.
- The fair market value of the property on the date of
change.
If you began using the property for personal purposes after 1980
and before 1987 and change it to business use in 2001, you generally
depreciate the property under the accelerated cost recovery system
(ACRS). However, if the depreciation under ACRS is greater in the
first year than the depreciation under MACRS, you must depreciate it
under MACRS. For information on ACRS, see Publication 534,
Depreciating Property Placed in Service Before 1987.
If you began using the property for personal purposes before 1981
and change it to business use in 2001, depreciate the property by the
straight line or declining balance method based on salvage value and
useful life.
Previous| First | Next
Publication Index | IRS-Forms Main | Home
|