General rules for depreciation of business or rental property
Real property can be depreciated over the following lives and methods:
|
Description |
Life in years |
Fastest Method |
Optional method |
|
Commercial buildings |
39 |
Straight Line |
N/A |
|
Residential buildings |
27.5 |
Straight Line |
N/A |
|
Land improvements |
15 |
150% of straight line |
Straight line |
Personal property is defined as property that is not real property. Common lives and methods for personal property other than automobiles and trucks are:
|
Description |
Life in years |
Fastest Method |
Optional method |
|
Computers |
5 |
200% of straight line |
Straight line |
|
Assets used in rentals |
5 |
200% of straight line |
Straight line |
|
Office equipment |
7 |
200% of straight line |
Straight line |
Automobiles and trucks are depreciated similar to other personal property; however, there are limitations on the amount of the depreciation that can be claimed in any year. For 2008 those limitations on a $30,000 vehicle (based on 100% business use) are:
|
|
Light car |
Light truck |
SUV/Truck over 6,000 pounds |
Fastest Method |
Optional method |
|
2008 |
2,960 |
3,160 |
6,000 |
200% of straight line |
Straight line |
|
2009 |
4,800 |
5,100 |
9,600 |
|
|
|
2010 |
2,850 |
3,050 |
5,760 |
|
|
|
2011 |
1,775 |
1,875 |
3,456 |
|
|
For 2008 only, 50% bonus depreciation is available with the following limits. Note that the first use of the property must be by you (cannot be used).
|
Description |
Limit |
|
Land improvements |
No limit |
|
Personal property (non-vehicle) |
No limit |
|
Light cars |
7,800 |
|
Light trucks |
8,000 |
|
Heavy truck / SUV (cost = $30,000) |
12,000 |
Expensing of personal property (non-auto) is also allowed for 2008 up to a limit of $250,000 for all such personal property. If either bonus depreciation or expensing is used, then the regular depreciation would be less because the bonus or expensing is deducted from the cost of the item before computing regular depreciation.
Depreciation under alternative minimum tax can be different with respect to both the life of the asset and the method. Generally, alternative minimum tax depreciation is slower. Both bonus depreciation and expensing are allowed for alternative minimum tax.
Rules for California and other state taxes are not identical to the federal rules.
Possible elections:
- To use the optional straight line method instead of faster depreciation
- To expense all or a portion of qualifying property
- To take 50% bonus depreciation
Election not to use either bonus depreciation or expensing should be considered when:
- The current year tax benefit is less than expected future year tax benefit after considering the time value of money
- The asset is an auto (see below)
The election to use straight line depreciation instead of the 150% or 200% method should be considered when
- Alternative minimum tax is an issue
- The asset is an auto. If any accelerated depreciation including bonus and expensing are used, then the vehicle deduction can never be based on the standard mileage rate and actual cost would have to be used in all future years.
Please call us if you have any questions about this election.
