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Depreciation Deduction

What is the depreciation deduction?

The depreciation deduction is a percentage of the basis of depreciable property which is taken yearly over the useful life of the property. The IRS rules determine the useful life of a particular item and the percentage to use.

If your property is depreciable, you must either take:

  1. the depreciation or
  2. the section 179 deduction.


Disposing a property

When you dispose of the property, the depreciation you deducted or should have deducted must be subtracted from the basis of the property when you determine your taxable gain or loss.

To determine the depreciation deduction, you need to understand:

  1. who can claim depreciation (below),
  2. the different types of property,
  3. when depreciation begins and ends.
Who can claim depreciation?

To claim depreciation, you must be the owner of the property and you must use the property in your trade or business or for producing income. You own the property and can depreciate it even if you borrowed the money to purchase it through a mortgage or other loan.

Generally, if you pay rent on property, you cannot depreciate it. Usually, only the owner of property can depreciate the property. However, if you make permanent improvements to business property you rent, you can depreciate those improvements.



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