Depreciation
When a taxpayer purchases a tax-deductible asset for use over several years, the taxpayer can deduct a percentage of the asset’s value from his or her yearly taxable income over the life of the asset. (See IRC § 167, 168 and the IRS tables of class lives and recovery periods). The IRS publishes specific depreciation schedules for different classes of assets. The schedules tell a taxpayer what percentage of an asset’s value may be deducted each year and the number of years in which the deductions may be taken. The values of these deductions are used to determine the asset’s recomputed basis at the time the taxpayer sells the asset. (See IRC § 1245(a)(2)(A)).
For example, if a taxpayer purchased a widget with a $1,000 basis, then deducted $100 from his ordinary income each year for the widget’s depreciation, after five years the widget’s adjusted basis would be $500.
Read more about this topic: Depreciation Recapture
Famous quotes containing the word depreciation:
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