Tax Facts

Defining a Long-Term Asset

Our small business clients often ask the difference between a long and short term asset - especially with regard to deduction and depreciation of that asset. We'll define a Long-Term Asset in this post.

The main distinction is to first ask the question: how long will this asset have a useful life in the business you are operating. So, don't get this confused with its actual physical life. The IRS generally sets the rules on what is reasonably expected to be the useful life of a particular long-term asset.

Consider this: anything you purchase for your business that will be used for more than one year from the date you put it into service is considered a long-term asset or aka a capital expense. For example, this would be a building, computer equipment, machinery, furniture, and reference books. All these capital expenses would be considered long-term assets in the business and should appear on the books and on the tax return as such.

So there it is. Determining if your purchase was a long-term asset is a fairly simple characterization to do. Talk to your Enrolled Agent or CPA if you have any doubt about the reasonable useful life of an asset purchase for your business or rental property.

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