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MODULE IX
DEPRECIATION

By Norma Wahnon

Copyright 2012 Norma Wahnon

Smashwords Edition

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INTRODUCTION

Depreciation is an income tax deduction that allows a taxpayer to recover the cost or other basis of certain properties. It is an annual allowance for the wear and tear, deterioration, or obsolescence of the property”.

The allowed or allowable deduction for depreciation, cost recovery, amortization, or depletion of property is related to property used in a trade or business, or property held for the production of income.

The definition of depreciation implies that an asset acquired will benefit from more than one accounting period and therefore its cost should be distributed to the estimated period the asset will serve. However, taxpayers can elect to recover all or part of qualified property by choosing to deduct the cost in the year of placement in service instead of recovering the cost of the property by taking depreciation deductions. This option is known as Section 179 deduction for qualifying property in the year of placement in service (Publication 946).

Any depreciable asset must meet the following five tests:

– Taxpayer must own the property;

– Taxpayer must use the property in business or in an income–producing activity;

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