Don't overlook these!
Updated for 2012
Determining Depreciable Basis:
If you start a business you probably already have equipment that can be used in your business (e.g., computer, printer, fax machine, desk, etc.).
You may have been using your equipment for quite a while before starting your business. Or, you might have just purchased some new equipment in anticipation of starting your business.
In any case, you're allowed to claim depreciation for your equipment once you start using it for a business or income producing activity (e.g., investment income).
The question is, on the date you convert your personal use property to business use, what value should you assign to the property as its depreciable basis?
You must compare two values on the date of conversion to business use and use the lower value as the basis for determining depreciation.
Use the lesser of:
Fair market value is established when willing parties, unrelated to each other, having adverse interests in the transaction, and having all material facts in connection with the transaction, agree on a price for an item. This is referred to as an arm's length transaction.
Check the classifieds, eBay, and other sources for prices to come up with fair market values for your property.
If you recently purchased items close to the date of conversion, your cost will probably be the same as the market value.
If you originally acquired property other than by purchasing it, the basis of the property will depend on how you acquired it.
For example, if you inherit property your basis is generally the fair market value at the date of the person's death or alternate valuation date; if you received property as a gift, your basis depends on the donor's basis.
First-year expensing deduction (Section 179): Property originally used for personal use then converted to business use is not eligible for first-year expensing.
If property is transferred solely for stock and you (or you and others in the transferor group) control the corporation immediately after the exchange, no gain or loss is recognized.
On the other hand, if you receive boot from the corporation, in addition to stock, gain is taxed to you up to the amount of boot received. Boot is money or the fair market value of other property received in addition to the stock.
Depreciation: Leasehold Improvements
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