Depreciation is an annual deduction that allows taxpayers to recover the cost or other basis of their business or investment property over a specified number of years. Depreciation is an allowance for the wear and tear, decline, or uselessness of a property, and begins when a taxpayer places property in service for use in a trade or business. The property ceases to be depreciable when the taxpayer has fully recovered the property's cost or other basis, or when the property has been retired from service, whichever comes first. Depreciation is reported on Form 4562.
While depreciation and basis can seem overwhelming to the beginner tax professional, with an understanding of the basics, depreciation and basis are not difficult to determine.
Objectives
After completing this lesson, you will be able to:
- Determine whether property qualifies as depreciable under federal tax law based on use, ownership, and useful life
- Calculate the correct depreciable basis of property, including required adjustments for improvements, rebates, and prior depreciation
- Select and apply the appropriate MACRS recovery period, depreciation method, and convention for different types of property
- Compute allowable depreciation deductions for business and rental assets placed in service or disposed of during the tax year
- Distinguish between GDS and ADS depreciation and apply ADS when required or elected
- Evaluate eligibility for Section 179 expensing and special depreciation allowances, and calculate their impact on taxable income
- Report depreciation accurately on Form 4562 and trace the deduction to the correct federal schedules
Field of Study: Federal Tax Law — 1 Hour
Course Level: Intermediate
Prerequisite: General tax preparation knowledge is required
Delivery Method: Self-Study
Expiration Date to earn CEs: July 30, 2027.
* This course does not qualify for California CTEC continuing education credit. It counts for federal (IRS) CE only and will be reported to your PTIN account.