If property you acquire to use in your business has a useful life that extends substantially beyond the year it is placed in service, 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. This method of deducting the cost of business property is called depreciation.
Business property you must depreciate includes the following items.
Office furniture
Buildings
Machinery and equipment
You can choose to deduct a limited amount of the cost of certain depreciable property in the year you place it in service for use in your business. This deduction is known as the "section 179 deduction." You can also take a special depreciation allowance for certain property you acquire and place in service before January 1, 2005. For more information about depreciation, the section 179 deduction, and the special depreciation allowance, see Publication 946, How To Depreciate Property.
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Depreciation must be taken in the year it is allowable. Allowable depreciation not taken in a prior year cannot be taken in the current year. If you do not deduct the correct depreciation, you may be able to make a correction by filing Form 1040X, Amended U.S. Individual Income Tax Return (pdf), or by changing your accounting method. For more information on how to correct an incorrect depreciation deduction, see chapter 1 in Publication 946. |
Information courtesy of the Internal Revenue Service.
Business Expenses:
Business Start-Up Costs
Depreciation
Business Use of Your Home
Car and Truck Expenses
