Making Sense of the New Depreciation Rules for 2016

Making Sense of the New Depreciation Rules for 2016

Repair vs. Home Improvement

Repair – deduct in one year, regardless of the cost

Home improvement – depreciate over 39 years

New definition can now include replacing some windows/doors and installing wood/tile floors in some rooms

 

Office Equipment (computers, printers, copiers, etc.)

Cost less than $2,500 – deduct in one year

Cost more than $2,500 – depreciate over 5 years

Use 50% bonus depreciation if purchased new and used more than 50% of time in business

Use Section 179 rule if used more than 50% of time for business

 

Personal Property (furniture, appliances, playground equipment, etc.)

Cost less than $2,500 – deduct in one year

Cost more than $2,500 – depreciate over 7 years

Use 50% bonus depreciation if purchased new

Use Section 179 rule if used more than 50% of time for business

 

Land Improvement (fence, patio, driveway)

Cost less than $2,500 – deduct in one year

Cost more than $2,500 – depreciate over 15 years

Use 50% bonus depreciation if purchased new

 

Home Improvement (remodeling, replacing roof, adding an addition)

Cost less than $2,500 – deduct in one year

Cost more than $2,500 – depreciate over 39 years

 

Special Rule for Home and Land Improvements

You may be able to deduct home and land improvements in one year under the following conditions: The combination of the cost of home and land improvements and house repairs in one year is the lessor of 2% of the unadjusted basis of the home or $10,000. If so deduct in one year.

Unadjusted basis of home = purchase price of home, plus home improvements made before and after the business began

Example: $250,000 purchase price + $50,000 home improvements before 2015 = $300,000 x 2% = $6,000

Total of home and land improvements and house repairs must be less than $6,000 (the lessor of $6,000 and $10,000) to qualify for this rule. If these expenses were $6,500 this rule would not apply and the first $6,000 could not be deducted in one year.

 

Tom Copeland – www.tomcopelandblog.com



Categories: Depreciation and Home, Record Keeping & Taxes

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