Due to depreciation, an asset decreases in value over a period of time. Your car, computer, or rental property are all examples of depreciable property. If you possess an asset that depreciates and is used for an income-producing activity, the IRS generally allows you to deduct a portion of the asset’s depreciable value when you file taxes. What assets can't be depreciated?
Let's break down what assets are depreciable as well as assets the IRS won’t allow you to recover the cost for.
How do depreciable assets and non-depreciable assets compare?
The IRS has laid out strict guidelines for you to use to determine when an asset can't be depreciated and when it can. To help you better understand when an asset can't be depreciated, let’s first have a look at the types of property you can depreciate.
According to the IRS, the following assets can be depreciated:
These assets can only be claimed on taxes as depreciable property if they are used to conduct business or are used by you to produce income. If a property is owned for personal use, perhaps as a vacation home for you and your family, it wouldn't be considered depreciable. However, if the home is rented out during the months you aren't occupying it, then you can only depreciate a portion of the property’s cost.
Here’s a look at a few of the other assets the IRS says can't be depreciated.
Sorry landowners, land is one asset that isn't depreciable.
Many of the assets your business acquires are considered depreciable — that is, you can claim a portion of its value on taxes. But, there are also plenty that can't be depreciated. These include:
- Personal property. Your home and any vehicles you purchase for personal use aren't considered depreciable assets. But, if you use your automobile for business-related purposes, then the IRS will allow you to claim a portion of the cost as a depreciable asset.
- Collectibles. Things like art or coins typically can't be depreciated, says The Hartford.
- Property that has been placed in service for less than a year. In order to claim an asset as depreciable property, it must have been used for a year or longer.
- Investments in stocks and bonds. The investments you make in stocks and bonds aren't considered depreciable assets and therefore, can't be claimed on taxes as such.
Not sure if your property can or can't be depreciated? Use this list of requirements to help.
Although the IRS is pretty straightforward in how it identifies the depreciable property, the agency also provides a list of requirements, which you’ll find down below, that can help you determine when your property can be claimed on taxes as depreciable property.
The IRS requirements for property to be depreciable include:
- The property is owned by you.
- The property is used to conduct business or produce income.
- The property is expected to last more than a year.
- It “must have a determinable useful life.”
If you possess qualifying assets, the IRS says you can begin to depreciate them when they're considered “in service for use” for your business or to produce income. For example, if you purchased equipment in 2021 and don't use it until 2022, you wouldn't be able to claim it as a depreciable asset in 2021 since it wasn’t used until 2022.