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.Table 10.4 shows the percentages of the business-use portion you can claimeach year for computers, cellular phones, and entertainment equipment, usingthe straight-line method and the half-year convention.Computers and periph-eral equipment are five-year property, and cellular phones and equipment thatcould be used for entertainment are seven-year property (depreciated over 10years in this case). DEPRECIATION OF PERSONAL PROPERTY213Example 10.8Marge uses a home computer (five-year property) 50 percent of the time tomanage investments.Marge also uses the computer 40 percent of the timein her part-time consumer research business.Marge s home computer islisted property because it is not used at a regular business establishment.Because her business use of the computer does not exceed 50 percent, thecomputer is not predominantly used in a qualified business use.Since shedoes not meet the 50 percent use test, Marge cannot elect a Section 179deduction for the computer and she must use straight-line depreciation.However, Marge can combine the time spent on the computer for both busi-ness and investment use (90 percent) for determining her depreciationdeduction.28 She will have to allocate the investment and business deprecia-tion to different schedules in her return.(See Where and How to ReportDepreciation and the Section 179 Deduction on page 215.)TABLE 10.4 Depreciation Percentages for Listed PropertyUsed Less Than 50 Percent for Business in Any Year5-YEAR 7-YEARYEAR PROPERTY PROPERTY1 10% 5%220 10320 10420 10520 10610 1071081091010 1011 5 OTHER COMMON BUSINESS DEDUCTIONS214THROW IN YOUR INVESTMENT USEEven though you have listed property that is used less than 50 percent in aqualified business use, you can also claim depreciation for the portion of usethat applies to investment activities.Keep in mind that computers and entertainment equipment are only re-garded as listed property if your home office does not meet one of the firstthree business-use requirements discussed in Chapter 7.If you have a de-ductible home office, there are no restrictions on depreciating the business-useportion of these items, even if it is less than 50 percent.You do not get a Section179 deduction, however, for any property that is used less than 50 percent forbusiness.31USE BY AN EMPLOYEEIf you are using the listed property as an employee, your use is not consideredbusiness use unless:1.The use is for your employer s convenience, and2.The use is required as a condition of your employment.32The IRS has taken a pretty strict position on the condition of employment requirement with respect to a home computer.In the case of a universityprofessor who purchased a home computer and used it 100 percent for doingscholarly research and applying for research grants, the IRS held that this wasnot required, even though the university provided no word-processing facili-ties.33 The IRS said:Although the benefits of [the taxpayer s] use of the computer may inure to theemployer, the purchase of a computer was clearly not required as a condition ofemployment.The facts suggest that the computer use, although work-related, isnot inextricably related to proper performance of the employee s job.Further,there appears no evidence in the facts that those employees who did not pur-chase a computer were professionally disadvantaged.34The Tax Court, on the other hand, has taken a more liberal approach to thisrequirement.It decided a case involving a different university professor and hiswife, who was a transportation planner.The professor stored much of his re-search material at his home because of lack of space at the university, and didmuch of his research at home.He did not have access to a computer at the uni-versity, so he bought a home computer for storing information and for word pro-cessing in his academic research.The professor s wife used the computer inher work as the chief transportation planner for a local governmental agency.Her job required extensive number crunching which had previously been doneon a mainframe computer owned by the state, but the state eliminated access DEPRECIATION OF PERSONAL PROPERTY215to this computer.Although the couple did not meet the tests relating to deduc-tions for their home office, the Tax Court held that the computer met the condition of employment requirement in this case, and the convenience ofthe employer requirement.The court said the computer purchase spared theemployers from providing them with suitable computer equipment.35RECORDS YOU SHOULD KEEPListed property that is continually used more than 50 percent in a qualifiedbusiness use is treated the same as any other five-year or seven-year property;except that for all listed property, you must keep adequate records to indicateyour business (and investment) use.36 Your records do not have to conform toany specific format, but you must be able to document the following:1.The amount of each separate expenditure with respect to an item oflisted property.2.The length of time the item was used for business or investment purposescompared to total use.37If your business-use percentage of listed property is relatively constantthroughout the year, you can use a sampling, by maintaining records for aportion of the year or a portion of each month, instead of keeping records forthe entire year.38 For more details on record-keeping for business vehicles, seeChapter 12.Example 10.9Ed is self-employed and has a computer that he uses in a home office thatdoes not meet the business-use requirements of Section 280A.Ed documentsthe business use of his computer for the first three months of the year as 55percent of total use.As long as Ed can establish that his business usage con-tinues at approximately the same rate for the rest of the year, his records sup-port a deduction based on 55 percent of the cost of the computer (that is, hecan use the 200 percent method or the Section 179 election if he wants to).Where and How to Report Depreciation and theSection 179 DeductionYou are required to fill out and send in Form 4562, Depreciation and Amorti-zation, only under one or more of the following circumstances:1.You are claiming depreciation for property placed in service during theyear. OTHER COMMON BUSINESS DEDUCTIONS2162.You are making a Section 179 election, or have a Section 179 deductioncarryover.3.You are claiming depreciation on listed property, regardless of when itwas placed in service.4.You are claiming amortization costs that began during the current year(see below regarding computer software).5.You are claiming a deduction for any vehicle on any form other thanSchedule C (Form 1040) or Schedule C-EZ (Form 1040).6.You are claiming any depreciation on a corporate income tax return(other than Form 1120S).If you are claiming depreciation or the Section 179 deduction in more thanone business activity, or a business activity and an investment activity, you aresupposed to fill out a separate Form 4562 for each activity.39 You could be usingthe same asset for different activities; you still have to divide up the deprecia-tion relating to each activity [ Pobierz całość w formacie PDF ]
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.Table 10.4 shows the percentages of the business-use portion you can claimeach year for computers, cellular phones, and entertainment equipment, usingthe straight-line method and the half-year convention.Computers and periph-eral equipment are five-year property, and cellular phones and equipment thatcould be used for entertainment are seven-year property (depreciated over 10years in this case). DEPRECIATION OF PERSONAL PROPERTY213Example 10.8Marge uses a home computer (five-year property) 50 percent of the time tomanage investments.Marge also uses the computer 40 percent of the timein her part-time consumer research business.Marge s home computer islisted property because it is not used at a regular business establishment.Because her business use of the computer does not exceed 50 percent, thecomputer is not predominantly used in a qualified business use.Since shedoes not meet the 50 percent use test, Marge cannot elect a Section 179deduction for the computer and she must use straight-line depreciation.However, Marge can combine the time spent on the computer for both busi-ness and investment use (90 percent) for determining her depreciationdeduction.28 She will have to allocate the investment and business deprecia-tion to different schedules in her return.(See Where and How to ReportDepreciation and the Section 179 Deduction on page 215.)TABLE 10.4 Depreciation Percentages for Listed PropertyUsed Less Than 50 Percent for Business in Any Year5-YEAR 7-YEARYEAR PROPERTY PROPERTY1 10% 5%220 10320 10420 10520 10610 1071081091010 1011 5 OTHER COMMON BUSINESS DEDUCTIONS214THROW IN YOUR INVESTMENT USEEven though you have listed property that is used less than 50 percent in aqualified business use, you can also claim depreciation for the portion of usethat applies to investment activities.Keep in mind that computers and entertainment equipment are only re-garded as listed property if your home office does not meet one of the firstthree business-use requirements discussed in Chapter 7.If you have a de-ductible home office, there are no restrictions on depreciating the business-useportion of these items, even if it is less than 50 percent.You do not get a Section179 deduction, however, for any property that is used less than 50 percent forbusiness.31USE BY AN EMPLOYEEIf you are using the listed property as an employee, your use is not consideredbusiness use unless:1.The use is for your employer s convenience, and2.The use is required as a condition of your employment.32The IRS has taken a pretty strict position on the condition of employment requirement with respect to a home computer.In the case of a universityprofessor who purchased a home computer and used it 100 percent for doingscholarly research and applying for research grants, the IRS held that this wasnot required, even though the university provided no word-processing facili-ties.33 The IRS said:Although the benefits of [the taxpayer s] use of the computer may inure to theemployer, the purchase of a computer was clearly not required as a condition ofemployment.The facts suggest that the computer use, although work-related, isnot inextricably related to proper performance of the employee s job.Further,there appears no evidence in the facts that those employees who did not pur-chase a computer were professionally disadvantaged.34The Tax Court, on the other hand, has taken a more liberal approach to thisrequirement.It decided a case involving a different university professor and hiswife, who was a transportation planner.The professor stored much of his re-search material at his home because of lack of space at the university, and didmuch of his research at home.He did not have access to a computer at the uni-versity, so he bought a home computer for storing information and for word pro-cessing in his academic research.The professor s wife used the computer inher work as the chief transportation planner for a local governmental agency.Her job required extensive number crunching which had previously been doneon a mainframe computer owned by the state, but the state eliminated access DEPRECIATION OF PERSONAL PROPERTY215to this computer.Although the couple did not meet the tests relating to deduc-tions for their home office, the Tax Court held that the computer met the condition of employment requirement in this case, and the convenience ofthe employer requirement.The court said the computer purchase spared theemployers from providing them with suitable computer equipment.35RECORDS YOU SHOULD KEEPListed property that is continually used more than 50 percent in a qualifiedbusiness use is treated the same as any other five-year or seven-year property;except that for all listed property, you must keep adequate records to indicateyour business (and investment) use.36 Your records do not have to conform toany specific format, but you must be able to document the following:1.The amount of each separate expenditure with respect to an item oflisted property.2.The length of time the item was used for business or investment purposescompared to total use.37If your business-use percentage of listed property is relatively constantthroughout the year, you can use a sampling, by maintaining records for aportion of the year or a portion of each month, instead of keeping records forthe entire year.38 For more details on record-keeping for business vehicles, seeChapter 12.Example 10.9Ed is self-employed and has a computer that he uses in a home office thatdoes not meet the business-use requirements of Section 280A.Ed documentsthe business use of his computer for the first three months of the year as 55percent of total use.As long as Ed can establish that his business usage con-tinues at approximately the same rate for the rest of the year, his records sup-port a deduction based on 55 percent of the cost of the computer (that is, hecan use the 200 percent method or the Section 179 election if he wants to).Where and How to Report Depreciation and theSection 179 DeductionYou are required to fill out and send in Form 4562, Depreciation and Amorti-zation, only under one or more of the following circumstances:1.You are claiming depreciation for property placed in service during theyear. OTHER COMMON BUSINESS DEDUCTIONS2162.You are making a Section 179 election, or have a Section 179 deductioncarryover.3.You are claiming depreciation on listed property, regardless of when itwas placed in service.4.You are claiming amortization costs that began during the current year(see below regarding computer software).5.You are claiming a deduction for any vehicle on any form other thanSchedule C (Form 1040) or Schedule C-EZ (Form 1040).6.You are claiming any depreciation on a corporate income tax return(other than Form 1120S).If you are claiming depreciation or the Section 179 deduction in more thanone business activity, or a business activity and an investment activity, you aresupposed to fill out a separate Form 4562 for each activity.39 You could be usingthe same asset for different activities; you still have to divide up the deprecia-tion relating to each activity [ Pobierz całość w formacie PDF ]