Starting Your Business

What are Business Expenses

Depreciation of Business Property

Depreciation is a loss in the value of property over the time the property is being used. Events that can cause property to depreciate include wear and tear, age, deterioration, and obsolescence. You can get back your cost of certain property by taking deductions for depreciation. This includes equipment you use in your business or for the production of income.

If property you acquire to use in your business has a useful life that extends substantially beyond the year you place it 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.

You can elect to recover all or part of the cost of certain qualifying property, up to a limit, by deducting it in the year you place the property in service.  This is the section 179 deduction.  You can elect the section 179 deduction instead of recovering the cost by taking depreciation deductions.

Publication 946 contains information about who can claim depreciation, what can be depreciated, and how to claim depreciation.

Important References:

Publication 534 Depreciating Property Placed in Service Before 1987
Publication 946 How to Depreciate Property
Publication 334 Tax Guide  for Small Business
Form 4562 Depreciation and Amortization
Instructions for 4562
Schedule C (Form 1040) Profit or Loss from Business