Do you currently have a business office in the home or are simply working at home due to Covid-19, you likely have some former personal assets that you now use for business.

Let’s say you are working at home and sitting in the fancy chair you inherited from your grandmother.

You can depreciate that chair but only for the percent of the time you use if for business.

Let’s say your business use is 85% of the time.

Let’s say that grandma’s estate was appraised, and this chair had a value of $10,000 when you inherited it. It is an antique, so it has not gone down in value since you inherited it.

antique chair work at home

Depreciating a Formerly Personal Asset

When you convert the fancy chair to 85 percent business use, the law sees you as placing the item in service in your business at that time. That means you can begin depreciating the asset and claiming your tax deductions.

So how much of the chair’s value can you depreciate?  You are required to use the lesser of

  • fair market value on the date of conversion from personal to business use, or
  • adjusted basis of the property (generally the amount you paid for the asset plus the cost of any improvements).

With grandma’s chair, your adjusted basis is the inherited value.

But say you bought the chair for $8,000. Suppose it was worth $10,000 when you converted it to personal use. You would use the $8,000 figure to determine your depreciation deductions.

Bonus Depreciation and Section 179 Expense

Section 179 only applies to assets you directly purchased for your business. You may not use Section 179 to immediately expense assets that you convert from personal to business use.

Bonus Depreciation Is a Different Story

If you acquire bonus depreciation qualified property for personal use after September 27, 2017 and convert it to business use this year (or any time before 2027), you must use 100 percent bonus depreciation if you don’t elect out of it.

Example. You purchased an antique clock for $9,300 in January 2018. Yesterday, you placed the clock in business service by moving the clock from your entryway to your home office. If you don’t make a formal election in your tax return to elect out of bonus depreciation, you should claim the full $9,300 depreciation deduction on the antique clock this year.

Final thoughts

If you have personal assets that you now use for business be sure to revisit the depreciation opportunity.  If you placed these assets in use for business in a previous year it may be well worth it to amend your previous return.

You can amend a return within 3 years of its original due date and still receive a benefit.

If you have questions or need help, please contact us directly at 832-209-9115 or mark@cincocpa.com

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