J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

42.1 What Property May Be Depreciated?

Depreciation deductions may be claimed only for property used in your business or other income-producing activity. If the primary purpose of the property is to produce income but it fails to yield any income, the property may still be depreciated.

Depreciation may not be claimed on property held for personal purposes such as a personal residence or pleasure car. If property, such as a car, is used both for business and pleasure, only the business portion may be depreciated.

EXAMPLES

1. An anesthesiologist suspended his practice indefinitely because of malpractice premium rate increases. He continued to maintain his professional competence by taking courses and keeping up his equipment. The IRS ruled that he could not take depreciation on his equipment. Since he was no longer practicing, the depreciation did not relate to a current trade or business.

2. An electrician spent $1,325 on a trailer to carry his tools and protective clothing. Based on a useful life of three years less salvage value of $25, annual depreciation deductions came to $433. However, the IRS claimed that he could not claim depreciation during the months he was unemployed and the trailer was not used. The Tax Court disagreed. Depreciation is allowed as long as the asset is held for use in a trade or business, even though the asset is idle or its use is temporarily suspended due to business conditions.

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