Chapter 42

Claiming Depreciation Deductions

There are several methods of claiming expense deductions for your purchases in 2012 of equipment, fixtures, autos, and trucks used in your business:

• First-year expensing (Section 179 deduction), which allows a deduction of up to $139,000 in 2012 (42.3)
• Bonus depreciation, which is another first-year deduction for eligible property placed in service during 2012 (42.20).
• Regular depreciation, which allows a prorated deduction over a period of years. Most business equipment is depreciable under MACRS (modified accelerated cost recovery system) over a six-year period. MACRS applies to new and used property. The objective of MACRS is to provide rapid depreciation and to eliminate disputes over useful life, salvage value, and depreciation methods. Useful life and depreciation methods are fixed by law; salvage value is treated as zero. If you do not want to use MACRS accelerated rates, you may elect the straight-line method.

Capital investments in buildings are depreciable using the straight-line method; residential buildings are depreciated over 27.5 years; nonresidential real property placed in service after May 12, 1993, is depreciated over 39 years (42.12). Specific annual rates for each class of property are provided by IRS tables.

Land is not depreciable.

42.1 What Property May Be Depreciated?

42.2 Claiming Depreciation on Your Tax Return

42.3 First-Year Expensing Deduction

42.4 MACRS Recovery Periods

42.5 MACRS Rates

42.6 Half-Year Convention for MACRS

42.7 Last Quarter Placements—Mid-Quarter Convention

42.8 150% Rate Election

42.9 Straight-Line Depreciation

42.10 Computers and Other Listed Property

42.11 Assets in Service Before 1987

42.12 MACRS for Real Estate Placed in Service After 1986

42.13 Demolishing a Building

42.14 Leasehold Improvements

42.15 Depreciating Real Estate Placed in Service After 1980 and Before 1987

42.16 When MACRS Is Not Allowed

42.17 Amortizing Goodwill and Other Intangibles (Section 197)

42.18 Deducting the Cost of Computer Software

42.19 Amortizing Song Rights

42.20 Bonus Depreciation