You generally cannot deduct in one year the entire cost of property you acquired, produced, or improved and placed in service for use either in your trade or business or to produce income if the property is a capital expenditure. Instead, you generally must depreciate such property. Depreciation is the recovery of the cost of the property over a number of years. You deduct a part of the cost every year until you fully recover its cost. You may be able to elect under section 179 to recover all or part of the cost of qualifying property up to a limit, by deducting it in the year you place the qualifying property in service. For more information, refer to Publication 946, How to Depreciate Property.
The kinds of property that you can depreciate include machinery, equipment, buildings, vehicles, and furniture. You cannot claim depreciation on property held for personal purposes. If you use property, such as a car, for both business or investment and personal purposes, you can depreciate only the business or investment use portion. Land is never depreciable, although buildings and certain land improvements may be.
You may depreciate property that meets all five of the following tests:
- It must be property you own.
- It must be used in a business or income-producing activity.
- It must have a determinable useful life.
- It must be expected to last more than one year.
- It must not be excepted property. Excepted property (as described in Publication 946, How to Depreciate Property) includes certain intangible property, certain term interests, and property placed in service and disposed of in the same year.
Generally, if you are depreciating property you placed in service before 1987, you must use the Accelerated Cost Recovery System (ACRS) or the same method you used in the past. For property placed in service after 1986, you generally must use the Modified Accelerated Cost Recovery System (MACRS).
For more information, refer to:
- Publication 946, How to Depreciate Property,
- Publication 534 (PDF), Depreciating Property Placed in Service Before 1987,
- Publication 527, Residential Rental Property (Including Rental of Vacation Homes),
- Publication 463, Travel, Entertainment, Gift, and Car Expenses,
- Publication 587, Business Use of Your Home, and
- Publication 225, Farmer's Tax Guide.
Page Last Reviewed or Updated: December 16, 2014