Types of Property

Property may be tangible personal property, tangible real property, and intangible property.

  • The term personal property, in the legal sense, refers to property that is movable.
  • Real property, in the legal sense, refers to property that is not movable (e.g., land, buildings).
  • Intangible property refers to property that has no physical form (e.g., copyright, patent).

Examples:

  • Tangible personal property:
    • Answering machines
    • Bookshelves
    • Cars
    • Cell phones
    • Chairs
    • Computers
    • Copiers
    • Desks
    • Desk accessories
    • Farming equipment
    • Fax machines
    • File cabinets
    • Floor modeling and displays
    • Machinery
    • Musical instruments (if you're a musician)
    • Printers
    • Professional libraries are depreciable if their value decreases over time
    • Signs
    • Software purchased off-the-shelf (if it has a useful life of one year or less, like tax software, you can take an immediate deduction).
    • Telephones
    • Tools (if your business is a trade)
    • Trucks
    • Vacuum cleaners
  • Tangible real property:
    • Buildings, such as residential rental property and office buildings.
  • Intangible property:
    • Copyrights, patents and computer software.

Software:

  • Useful life of one year or less: The cost of off-the-shelf software that has a useful life of one year or less if deducted in full in the first year.
  • Useful life over one year: You may depreciate it over 36 months.
  • Installed in computer: Software already installed in a computer you purchase is not deducted separately unless the cost is stated separately. The cost of the computer is subject to regular depreciation rules.
  • Acquired in the acquisition of a business (Section 197 intangible):
    • If software is acquired in the acquisition of a business it is eligible for first-year expensing or depreciation over 36 months if it meets the following three tests:
      • It is readily available to the public.
      • It is not subject to an exclusive license.
      • It has not been substantially changed.
        • If these tests are not met, the software is classified as section 197 intangible property and must be amortized over 15 years. To determine the annual amortization, divide the cost by 15.

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