The tax laws and accounting standards that apply to the depreciation of business assets can be complex, confusing and difficult to decipher. This guide to basic Depreciation Calculations has been developed to make the complex task of depreciating your business assets as easy as possible. This will also assist you in understanding the basic concepts of depreciation, as well as, the methodology used by The Bassets Fixed Asset System to enter depreciation information and perform required calculations.
The information required for the depreciation calculations are as follows:
- Property Types: In general, depreciation is allowed on tangible and intangible property with a limited useful life of more than one year that is used in a trade or business or held for the production of income.
- Service Date: IRS rules define when an asset is placed in service and depreciation of the asset may begin. An asset is considered to be placed in service when it is first placed in a condition or state of readiness and availability for a specifically assigned function.
- Useful Life: Depreciation is allowed on tangible and intangible property with a useful life (Recovery Period or Amortization Period) of more than one year.
- Cost Basis: The basis is equal to asset’s purchase price. You may need to make some adjustments, under a number of different circumstances.
- Depreciation Methods: The Tax rules allow various methods to depreciate assets, including MACRS — Modified Accelerated Cost Recovery System and SL — Straight Line.
- First Year Conventions: When a piece of property is placed in service, you are required to use a particular convention to determine the depreciation deduction you will get for the first year.
This modified version of a White Paper is intended to give you a better understanding of the basic depreciation concepts. You can find more detailed version, including a comprehensive example, on the Bassets White Papers page.
More information about Bassets eDepreciation software can be found at Bassets.net. While there you can set up a demonstration, download a free evaluation copy and get a personalized pricing estimate.