Tax Facts

Property That's Not Eligible for Depreciation

Rules apply (of course!) when you want to deduct long-term assets in a business and on your business tax return. If it's property - real property, personal property, or otherwise - you can only depreciate or expense the cost of purchasing that property if it's used in your business and if it wears out or gets used up over time.

So, for example, if you have a rental property and it's a single-family house on land, you can only deduct (and in this case it becomes a depreciation deduction) the house portion of what you purchased and not the land. Land does not wear out. (There are exceptions to this when you are purchasing land specifically for oil drilling - then you have a deduction each year for the depletion of that oil in the land. But that's a different and special case.)

Here are some examples of property that would not classify as deductible or should not be depreciated on your tax return:

Collectible artwork that actually appreciates over time - you may have this in your lobby or in your executive suite.

Property that does not wear out over time - including stock in companies or gold.

Property that you use solely for personal purposes - an example might be your cell phone.

Property that you purchased and then sold in the same year.

Inventory.

If you use property from the list above in your business, you won't "deduct" it until you sell it. That's when you'll subtract the cost of the item from the sales price to calculate your taxable profit or gain (or loss!). When your cost exceeds your sales price, then you would have a loss to report at the time of the sale.

If you own a business, it's important to understand the difference between different types of property. There is real versus personal property versus listed property ... but we'll save that for a different blog post.

1
Defining a Long-Term Asset
Hiring a Family Member?

Related Posts

Click for the BBB Business Review of this Taxes - Enrolled Agent in Melbourne FL

1000 characters left