Claiming
Your Depreciation Deductions
If you're completing your own tax returns, you may want a
little more detailed explanation of exactly how to report
depreciation deductions.
In most cases, your depreciation deductions will be entered
on IRS Form 4562, Depreciation and Amortization, and then
the total amount will be carried over to Line 13 of your
Schedule C if you are a sole proprietor, or to Form 1120 for a C
corporation, Form 1120S for an S corporation, or to Form 1065
for a partnership or LLC.
You must file a Form 4562 for the first year you claim
depreciation or amortization on any particular piece of
property, for any year you claim a Section 179 expensing
election (including an amount carried over from a previous
year), and for every year you claim depreciation on a car,
other vehicle, or any other type of listed property. You
don't have to file this form if you are simply claiming
continued depreciation on property that is not considered listed
property, or if you are claiming auto expenses based on the Standard
Mileage Rate.
Do not combine depreciation expenses for more than one
business or investment activity on the same Form 4562. If you
operate more than one business, or if you conduct some other
type of activity for which you can deduct depreciation (e.g.,
you own some rental real estate that will be reported on
Schedule E), you'll need to consider each activity's expenses
separately in determining whether you need to file a Form 4562
for that business. It's very common to include several 4562s in
the same tax return. Just be sure that, at the top of the form,
you write the name of the business or activity to which that
copy of the form relates, along with its Employer
Identification Number if you have one.
If you (and your spouse, if filing jointly) are filing more
than one Form 4562, you should use one of the forms as a
"master" and complete Part I on that form only. This
section of the form computes your Section 179 expensing election
and applies the dollar limit ($24,000 for 2001), and since the
limit applies "per taxpayer" rather than "per
business activity," you need to total up all your elected
amounts in one place.
Part V of the form relates to cars and other listed property
and should generally be completed first. The total section 179
expensing election claimed for this type of property, if any, is
entered on Line 27 and carried over to the front of the form
(Line 7). The total amount of regular depreciation on listed
property is entered on Line 26 and is carried over to the front
of the form (Line 20).
Once you've taken care of Part V of the form, you can go back
and complete Part I, which helps you to compute your Section 179
expensing election for any new property placed in service during
the year, or any carryover of an elected amount from previous
years.
Then, complete Part II for any new property other than cars
and listed property placed in service during the year. If you
have more than one piece of property in an asset class (for
instance, you purchased several pieces of office furniture which
are considered seven-year property), your entry for column (c)
in Part II will be the total basis for all items in the class,
and your entry for column (g) will be the total depreciation
deductions for all items in the class.
Part III asks you to total up your depreciation deductions
for "old" property - that is, any property not first
placed in service in 2001. The total for property placed in
service in 1987 or later is entered on Line 17. The total for
property place in service before that date is entered on Line
19.
The grand total of your depreciation deductions are
calculated on Line 21, and then carried over to the appropriate
Schedule C (or other form).
Amortization deductions are treated separately, on Part VI of
the Form 4562 (Lines 40-42). Once entered here, they are not
added to the rest of your depreciation deductions. Instead, they
are carried over as "other expenses" to your Schedule
C, and must be listed separately on the back of that form. See
our discussion of how
to compute your amortization expenses, in the context of
business startup expenses.
|
Among the Business Tools are Form
1040, Schedule
C, Schedule
E and Form
4562. They are in Adobe Acrobat .pdf format,
and you will need Acrobat Reader 4.0 to view the
files and print them. A free version of Acrobat
4.0 is available in the Business Tools area as
well.
|
|
|