Depreciable Property

Depreciable property is any property other than land a property owner may depreciate for tax purposes.

Tangible property such as buildings, equipment furniture, machinery, and vehicles is depreciable property, and some forms of intangible property such as copyrights, computer software, and patents are depreciable property. Depreciation enables the property owner to recover the cost of their depreciable property and claim an allowance for its deterioration, wear and tear, and/or obsolescence. When an owner fully recovers the cost of their property or retires it, the property is no longer depreciable property.

Property must meet specific requirements to qualify as depreciable property. First, a taxpayer has to own the property. Second, a taxpayer has to use the property to produce income, as in a business. Third, the useful life of the property must exceed one year. Buildings, equipment and machinery, furniture, vehicles and other such tangible property are considered depreciable property. Under some circumstances, property that meets the preceding criteria still may not qualify as depreciable property.

For instance, an owner who puts property into service and disposes of it within the same year can not claim it as depreciable property. Nor may owners claim equipment as depreciable property if they used it to construct capital improvements. For most depreciable property, the Modified Accelerated Cost Recovery System (MACRS) is used for depreciation. In some cases, however, a taxpayer may be allowed to make a Section 179 deduction instead of depreciating a property.

Under Section 179, up to 100% of the cost of a qualifying depreciable property can be deducted, at the taxpayer’s discretion, in the tax year during which it was placed in service. Depreciation of depreciable property is reported on Form 4562.

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