Depreciation is a key concept in tax prep, allowing businesses and individuals to recover the cost of assets over their useful life. It directly impacts taxable income by maximizing deductions and ensuring compliance with tax laws. Understanding depreciation basics helps you provide accurate advice, avoid errors that may trigger audits and enhance your value to clients by supporting effective tax planning strategies.
Below, you’ll find a few of the top questions from a recent webinar on the topic and their accompanying answers. If you choose to attend the on-demand version of this webinar, you can access the full recording and the entire list of Q&As.
Q: Can you use straight-line depreciation?
A: Yes, you can. However, it’s recommended to evaluate which method works best for your client. For instance, if your client has higher profits, they may benefit from using an alternative depreciation method.
Q: Can you use GDS for some assets and ADS for others?
A: In some cases, yes. However, there are restrictions, especially with listed property. Your client may prefer a longer depreciation period to offset profit.
Q: To depreciate a car, must it be in the business name?
A: No, the car does not need to be titled in the business name. However, you must maintain records to determine the business-use percentage.
Q: If listed property drops below 50% business use, do you switch to ADS?
A: Yes. Once the business use of the property falls below 50%, ADS must be used in subsequent years [§280F(b)(2)(A)].
To learn more about depreciation basics, you can watch our on-demand webinar. NATP members can attend for free, depending on membership level! If you’re not an NATP member and want to learn more, join our completely free 30-day trial.
About National Association of Tax ProfessionalsThe National Association of Tax Professionals (NATP) is the largest association dedicated to equipping tax professionals with the resources, connections and education they need to provide the highest level of service to their clients. NATP is comprised of over 23,000 leading tax professionals who believe in a superior standard of ethics and exemplify professional excellence. Members rely on NATP to deliver professional connections, content expertise and advocacy that provides them with the support they need to best serve their clients. The organization welcomes all tax professionals in their quest to continually meet the needs of the public, no matter where they are in their careers.
The NATP headquarters is located in Appleton, WI. To learn more, visit www.natptax.com.
Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing.