Today TaxMama hears from John on the Internet who wants to know “I am purchasing some used equipment for my business. It has been fully depreciated by the previous owner. What depreciation schedules do I follow for used assets? For example, if I buy an asset that has a 7 year life but it is already 8 years old, how do I set that up as an asset on my books?”
That’s actually a very good question. You’re right. As far as the equipment itself is concerned, it’s fully depreciated.
But here’s the good news. When you buy the equipment, it’s new to you!
So you get to start over for its full depreciable life.
It goes on your books as an asset at the price you paid for it.
You may use IRC section 179 depreciation to write off the full cost, if it’s $105,000 or less – and you buy less $420,000 worth of total equipment for the year. Since the limit changes every year, I’ll give you a link to the Small Business Management and Taxes site that keeps a good at-a-glance summary for each year. I use this site’s tools because all the summaries are so easy to grasp. http://www.smbiz.com/sbrl012.html
If you prefer to depreciate it year-by-year, instead, you’d probably be using the MACRS tables for 7 years, yes again. Here’s a link to the tables – http://www.smbiz.com/sbrl012.html#hy
One thing though, you won’t be able to use the other two ‘Bonus Depreciations’. They’re only available on new equipment.
Regardless, of what you decide, please have your tax pro handle the depreciating. It’s more complicated than it looks. And there are lots of traps, if you don’t know all the rules.
And remember, you’ll find answers to questions about depreciation and all kinds of tax issues, free. Where? Where else? At TaxMama.com
- Ask TaxMama :: Where taxes are fun and answers are free
- the Small Business Management and Taxes site :: IRC section 179 depreciation
- the Small Business Management and Taxes site :: MACRS depreciation tables