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What Can and Cannot be Depreciated

What properties can be depreciated?

You can depreciate property only if it meets all the following requirements:

  • it must be property you own
  • it must be used in business or held to produce income
  • it must have a determinable useful life
  • it must be expected to last more than one year

It must be something that wears out, decays, gets used up, becomes obsolete or losses its value from natural causes. In other words, it must have a limited useful life. For this reason, land is never depreciable.

In addition to land and personal-use property, nondepreciable property includes:

  • inventory
  • items placed in service and disposed of in the same year
  • most leased property

You cannot depreciate repairs and replacements that do not add to the value of the property or extend its useful economic life. The cost of these repairs will generally be deductible as an expense of doing business.

When Depreciation Begins and Ends

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. For depreciation purposes, you place property in service when it is ready and available for use. Even if you are not using the property, it is in service when it is ready and available for its specific use.

You stop depreciating property either when you have fully recovered your cost or when you retire the property from service, whichever comes first. You fully recover your cost when your section 179 deduction and depreciation deduction are equal to your cost or investment in the property. Property is retired from service when you permanently withdraw it from use in your trade or business or from use in the production of income. Property is retired from service by sale or exchange, abandonment or destruction.



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