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Need Some Deductions for 2012?

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10 Oddball Tax Deductions

11 Most Overlooked Tax Deductions

Updated for 2012

Converting Personal Use Property to Business Use

Two years ago you bought a computer, printer, desk, chair, and file cabinet for personal use.

Now, you're starting your own marketing consulting business and will use your old equipment in your new business.

The question is:

Answer:

The IRS says, when you convert personal use property to business use, the value you must assign to the property for depreciation purposes is:

The lesser of...

...on the date of conversion.

In other words, on the date of conversion, compare the original cost of the property when you purchased it (adjusted basis) to its current fair market value.

Example:

Two years ago you paid:

Step 1:

Determine the adjusted basis of all the property you plan to use in your business.

Simply add up the cost of each item.

Step 2:

Determine the fair market value of each item you plan to use in your business.

You did the following to determine the fair market value of each item:

Based on your investigation, you determined that the total fair market value of your equipment was $1,200.

Step 3:

Determine the depreciable basis of the property.

Since the fair market value of $1,200 is less than the adjusted basis of $2,125, you must use $1,200 as your depreciable basis.

This means, the maximum amount you can depreciate (write off) is $1,200.

The period of time over which you can deduct depreciation depends on the property's recovery period.

For example:

Caution! Property converted from personal use to business use does NOT qualify for the first-year expensing deduction (Section 179).

To qualify, the property must be purchased and placed in service in the year the first-year expensing deduction is claimed. The property does not have to be new. In addition, property purchased from a related party does not qualify for the deduction.