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Did you know that if you own a business and buy a business property, you may be able to take depreciation deductions on your taxes IF the property is used for business purposes?
There is a distinct difference between personal and business property. Personal property can look the same as business property, such as a car, computer, or real estate property, but you use personal property for personal use and business property ONLY for business use.
Personal property isn’t deductible, but business property is deductible not only using regular depreciation, but bonus depreciation too (through 2022).
The difference between regular depreciation and bonus depreciation is huge. Regular depreciation occurs between 3 and 39 years depending on the type of property (more expensive property depreciates over longer periods). Bonus depreciation, on the other hand, allows 100% deduction of the property’s cost in one year, but this lasts only through 2022.
Here’s the kicker. You can’t take depreciation if you buy the property to start your business. Your business must already be started. This doesn’t mean actively running, aka earning profits. It just means you must have started the business and have the intent to keep it going.
Depreciation starts when you put the property in place to operate your business. This doesn’t mean you’re actively using it, but it must be available for use when you need it. This may or may not occur right when you buy the property.
Most personal property depreciation starts on July 1st of the year you buy it. If you buy property during the 4th quarter that totals at least 40 percent of your total property, you can take depreciation mid-quarter of the quarter you purchase it.
Any real property you purchase begins deprecation mid-month of the month you place the property in service.
If you’d like help with your depreciation deductions, call us today at 714-383-2307.