Here at Depreciation Guru we are so deep into depreciation and fixed assets that we assume everyone who visits automatically knows the definition of a fixed asset. We know that is not necessarily the case so, in this post we will pick our heads up and start at the beginning.
What, exactly, is a fixed asset? Fixed assets, also known as a non-current asset or as property, plant and equipment (PP&E), is a term used in accounting for assets and property which cannot easily be converted to cash.
The Internal Revenue Service defines depreciable property as business or income-producing property that must be:
- Owned by the business
- Used in the business or income-producing activity
- Have a determinable useful life
- Must be expected to last more than one year
The depreciation of depreciable property, commonly known as a fixed asset, is an expense deduction or allowance for the wear and tear, deterioration, or obsolescence of property as defined by the IRS. The IRS further defines two types of depreciable property:
- Tangible property: Buildings, machinery, vehicles, furniture, fixtures and equipment
- Intangible property: Patents, copyrights and computer software
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