Can I deduct as a business expense the entire acquisition cost of a new computer that I purchased for my business or do I have to use depreciation?

Answer:

You may be able to deduct the acquisition cost of a computer purchased for business use in several ways:

  • Under Internal Revenue Code section 179, you can expense the acquisition cost of the computer if the computer is qualifying property under section 179, by electing to recover all or part of the cost up to a dollar limit, by deducting the cost in the year you place the computer in service, and if there's any remaining cost, by either depreciating it with a special depreciation allowance or depreciating any remaining cost over a 5-year recovery period.
  • The special depreciation allowance is 50% for qualified property acquired and placed in service before September 28, 2017, and 100% for qualified property acquired and placed in service after September 27, 2017.
  • If the acquisition cost is eligible for either the 50% or 100% special depreciation allowance, then you can depreciate either 50% or 100% of the acquisition cost in the year you place the computer in service and depreciate any remaining cost over a 5-year recovery period.
  • Alternatively, you can depreciate the acquisition cost over a 5-year recovery period in the year you place the computer in service, if you don't elect to expense any of the cost under section 179, the computer isn't eligible for either the 50% or 100% special depreciation allowance in the year you place the computer in service, or you decide to elect out of any special depreciation allowance for the class of property. 
  • You can never deduct more than the acquisition cost.

Note: For taxable years beginning in 2017, a taxpayer may expense up to $510,000 (the dollar limit) of the cost of the section 179 property placed in service during that taxable year. The $510,000 dollar limit amount is reduced by the amount by which the cost of the section 179 property placed in service during the taxable year exceeds $2,030,000.

On what form do I deduct the standard mileage rate for my business travel, and do I also need to figure depreciation of the vehicle?

Answer:

Many taxpayers find using the standard mileage rate an easier way to expense their vehicle. You can't depreciate the vehicle if you use the standard mileage rate. Instead of the standard mileage rate, you can use the actual expense method. If you use this method, you need to figure depreciation for the vehicle.

You can claim business use of an automobile on:

I have a home office. Can I deduct expenses like mortgage, utilities, etc., but not deduct depreciation so that when I sell this house the basis won't be affected?

Answer:

Regular Method - No, all allowed or allowable depreciation must be considered at the time of sale. You can generally figure depreciation on the business use portion of your home up to the gross income limitation, over a 39 year recovery period and using the mid-month convention. As long as you determine actual expenses and the correct amount of allowed or allowable depreciation, the depreciation reduces the basis of your home accordingly, whether or not you actually claim it on your tax return.  

Simplified Option - There's a simpler option, as announced in Revenue Procedure 2013-13, where qualifying taxpayers may use a prescribed rate ($5 per square foot limited to 300 square feet) to compute their business use of home deduction. This option used in lieu of determining actual expenses has the advantage of reducing taxpayers' recordkeeping burden. Under this option, depreciation is treated as zero and won't reduce the basis of your home. For more information, visit Home Office Deduction, Simplified Option for Home Office Deduction, and FAQs – Simplified Method for Home Office Deduction. In addition, under this optional method, taxpayers can still deduct business expenses unrelated to qualified business use of the home for that taxable year, such as advertising, wages, and supplies.

We have incurred costs for substantial work on our residential rental property. We replaced the roof with all new materials, replaced all the gutters, replaced all the windows and doors, replaced the furnace, and painted the property’s exteriors. What are the IRS rules concerning depreciation?

Answer:

Replacements of the entire roof and all the gutters, and all windows and doors of your residential rental property:

  • Are generally restorations to your building property because they're replacements of major components or substantial structural parts of the building structure. As a result, these replacements are capital improvements to the residential rental property.
  • Are in the same class of property as the residential rental property to which they're attached.
  • Are generally depreciated over a recovery period of 27.5 years using the straight line method of depreciation and a mid-month convention as residential rental property.

Repainting the exterior of your residential rental property:

  • By itself, the cost of painting the exterior of a building is generally a currently deductible repair expense because merely painting isn't an improvement under the capitalization rules.
  • However, if the painting directly benefits or is incurred as part of a larger project that's a capital improvement to the building structure, then the cost of the painting is considered part of the capital improvement and is subject to capitalization.
  • In this case, the painting is incurred as part of the overall restoration of the building structure. Therefore, the repainting costs are part of the capital improvements and should be capitalized and depreciated as the same class of property that was restored, as discussed above.

Replacement of the furnace in your residential rental property:

  • Is generally a restoration to your building property because it's for the replacement of a major component or substantial structural part of the building's HVAC system. Therefore, the furnace replacement is a capital improvement to your residential rental property.
  • As with the restoration costs discussed above, these costs are in the same class of property as the residential rental property to which the furnace is attached.
  • Is generally depreciated over a recovery period of 27.5 years using the straight line method of depreciation and a mid-month convention as residential rental property.

Note: A taxpayer whose average annual gross receipts is less than or equal to $10,000,000 may elect to not capitalize amounts paid for repairs, maintenance, or improvements of certain eligible building property if the total amounts paid during the taxable year for such activities don't exceed certain dollar limitations. For more information, see Safe Harbor Election for Small Taxpayers in Tangible Property Regulations - Frequently Asked Questions.