Sample Business Property Depreciation Techniques

Ainer & Fraker, LLP – Business Property Depreciation

From Business Property Depreciation, we learned that whenever property is purchased for use in a business and that property has a useful like of more than one year, its cost must be deducted over its useful like. Refer to the examples listed below:

Example: A small business owner with a retail clothing store could expense under Sec 179 improvements that were made in 2010 through 2013 inside the store, such as built-in cabinets to better stock clothing or lights to brighten the fitting rooms. Allowing a retail store owner to expense these improvements immediately lowers the owner’s cost.

Example – Business taxpayer places in service, in 2013, $100,000 of equipment eligible for Sec 179 expensing and $350,000 of qualifying leasehold improvements.  Assuming there is no income limitation the maximum Sec 179 deduction that the taxpayer can claim for 2013 is $350,000 ($100,000 for the equipment and $250,000 for the qualifying leasehold improvements). 

Bonus Depreciation – For qualifying assets purchased and placed in service in 2012 and 2013, trades or businesses are allowed to depreciate an additional 50% of the cost of the assets. The bonus allowance does not apply to real estate.

Deducting the Cost of Business Assets– Most business assets are depreciated over a specified life. For some assets, the depreciation is straight-line, while for others accelerated methods that front load the deduction may be used. Following are examples of the depreciable life for some commonly encountered business assets. Assets that are used only partially for business must be prorated for business use.

SAMPLE DEPRECIABLE LIVES

Agricultural Equipment 7 Yrs
Automobiles (1) 5 Yrs
Commercial Real Estate 39 Yrs
Land Not Depreciable
Land Improvements 15 Yrs
Office Equipment 5 Yrs
Office Furnishings 7 Yrs
Residential Real Estate 27.5 Yrs
Trucks 5 Yrs

(1) Vehicles under 6,000 lbs. gross unladen weight have additional deduction restrictions.