- The IRS considers business property a fixed asset if it can be used for service in the business for more than one year. If the asset lasts only one year or less, then you expense the entire cost of the item at the time of purchase. Common fixed assets include buildings, furniture, vehicles, computers and office equipment . Some software, depending on cost and application, is considered a fixed asset along with patents and copyrights, even though those items do not have physical substance. Land is a fixed asset but is never depreciated.
- Your basis in the depreciable property is the value assigned to the property on the accounting general ledger and the amount that you depreciate for tax purposes. In general, basis is what you pay for the fixed asset, including taxes, shipping, acquisition fees and costs associated with acquiring financing for the asset, such as loan origination fees or legal costs. If you convert personal assets to business use, assign a cost to the asset equal to the fair market value of the asset at the time of conversion. Fair market value is the price you can reasonably expect to gain for the asset if you sold it.
- You depreciate most fixed assets using the Modified Accelerated Cost Recovery System (MACRS). Exceptions to using the MACRS system apply to assets placed in service prior to 1987, intangible property, some property transferred from a corporation or partnership and certain property for which you can elect another depreciation method if it offers a tax advantage.
- Depreciation begins the first day the fixed asset is available and ready for use for your business. If you purchase a piece of equipment, but don't set it up and configure it for two months, the equipment is not considered in service until you use it. Depreciation ends when you've expensed the entire value of the asset, or you no longer use the asset in your business.
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