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taxmap/pubs/p946-003.htm#TXMP435528ce When Does Depreciation   Begin and End?

Depreciation

Words you may need to know (see Glossary)

• Basis
• Exchange
• Placed in service

You begin to depreciate your property when you place it in service for use in your trade or business or for the production of income. You stop depreciating property either when you have fully recovered your cost or other basis or when you retire it from service, whichever happens first.

taxmap/pubs/p946-003.htm#TXMP1be24aa4 Placed in Service

Placed in Service

You place property in service when it is ready and available for a specific use, whether in a business activity, an income-producing activity, a tax-exempt activity, or a personal activity. Even if you are not using the property, it is in service when it is ready and available for its specific use.

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Example 1.

Donald Steep bought a machine for his business. The machine was delivered last year. However, it was not installed and operational until this year. It is considered placed in service this year. If the machine had been ready and available for use when it was delivered, it would be considered placed in service last year even if it was not actually used until this year.

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Example 2.

On April 6, Sue Thorn bought a house to use as residential rental property. She made several repairs and had it ready for rent on July 5. At that time, she began to advertise it for rent in the local newspaper. The house is considered placed in service in July when it was ready and available for rent. She can begin to depreciate it in July.

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Example 3.

James Elm is a building contractor who specializes in constructing office buildings. He bought a truck last year that had to be modified to lift materials to second-story levels. The installation of the lifting equipment was completed and James accepted delivery of the modified truck on January 10 of this year. The truck was placed in service on January 10, the date it was ready and available to perform the function for which it was bought.

taxmap/pubs/p946-003.htm#TXMP77357985 Conversion to business use.

If you place property in service in a personal activity, you cannot claim depreciation. However, if you change the property's use to use in a business or income-producing activity, then you can begin to depreciate it at the time of the change. You place the property in service on the date of the change.

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Example.

You bought a home and used it as your personal home several years before you converted it to rental property. Although its specific use was personal and no depreciation was allowable, you placed the home in service when you began using it as your home. You can begin to claim depreciation in the year you converted it to rental property because its use changed to an income-producing use at that time.

taxmap/pubs/p946-003.htm#TXMP2bfc78ea Idle Property

Idle Property

Continue to claim a deduction for depreciation on property used in your business or for the production of income even if it is temporarily idle (not in use). For example, if you stop using a machine because there is a temporary lack of a market for a product made with that machine, continue to deduct depreciation on the machine.

taxmap/pubs/p946-003.htm#TXMP6e16207a Cost or Other Basis Fully Recovered

Cost or Other Basis Fully Recovered

You stop depreciating property when you have fully recovered your cost or other basis. You recover your basis when your section 179 and allowed or allowable depreciation deductions equal your cost or investment in the property. See What Is the Basis of Your Depreciable Property, later.

taxmap/pubs/p946-003.htm#TXMP6d1dffb2 Retired From Service

Retired From Service

You stop depreciating property when you retire it from service, even if you have not fully recovered its cost or other basis. You retire property from service when you permanently withdraw it from use in a trade or business or from use in the production of income because of any of the following events.

• You sell or exchange the property.
• You convert the property to personal use.
• You abandon the property.
• You transfer the property to a supplies or scrap account.
• The property is destroyed.

Previous Page:  Publication 946 - How to Depreciate Property - What Property Cannot Be Depreciated? Next Page:  Publication 946 - How to Depreciate Property - What Method Can You Use To Depreciate Your Property? Use     to find additional instances of index items.