Depreciation is a way of accounting for the loss of value of an asset over time due to wear and tear, obsolescence, or other factors. Depreciation allows you to deduct a portion of the cost of an asset from your taxable income, reducing your tax liability. However, not all assets can be depreciated. In this article, we will explain what assets cannot be depreciated and why.
What Are Depreciable Assets?
Depreciable assets are assets that have a limited useful life and are used for business or income-producing purposes. Examples of depreciable assets include:
To claim depreciation on an asset, you must meet the following criteria:
- You own the asset or have a leasehold interest in it
- You use the asset for business or income-producing purposes
- The asset has a determinable useful life of more than one year
- The asset is expected to lose value over time
What Assets Cannot Be Depreciated?
Some assets cannot be depreciated because they either do not meet the criteria for depreciation or are specifically excluded by the IRS. Here are some examples of assets that cannot be depreciated:
- Land. Land does not wear out, become obsolete, or get used up. Therefore, it does not lose value over time and cannot be depreciated. However, some costs associated with land, such as landscaping, grading, or clearing, may be depreciated if they are necessary for the use of the land.
- Personal property. Personal property is property that is used for personal purposes, such as your home, your car, or your furniture. Personal property cannot be depreciated unless you use it for business or income-producing purposes. For example, if you use your car for both personal and business purposes, you can only depreciate the portion of the car that is used for business.
- Collectibles. Collectibles are items that have artistic or historical value, such as art, coins, stamps, or antiques. Collectibles cannot be depreciated because they are not used for business or income-producing purposes. Moreover, collectibles may appreciate in value over time, rather than depreciate.
- Investments. Investments are assets that you acquire for the purpose of earning income, such as stocks, bonds, or mutual funds. Investments cannot be depreciated because they are not tangible assets that lose value over time. Instead, investments are subject to capital gains or losses when you sell them.
- Intangible assets. Intangible assets are assets that do not have a physical form, such as goodwill, patents, trademarks, or software. Intangible assets cannot be depreciated, but they may be amortized, which is a similar concept that allows you to deduct a portion of the cost of an intangible asset over its useful life.
Depreciation is a useful tax strategy that allows you to recover the cost of an asset over its useful life. However, not all assets can be depreciated. You should be aware of the assets that cannot be depreciated and the reasons why. If you have any questions about depreciation or need help with your taxes, please contact us at Tax Savers Online. We are a professional tax service provider that can help you with all your tax needs. Thank you for reading our blog article on which assets cannot be depreciated. We hope you found it informative and helpful. Please share it with your friends and family who may benefit from it. And don’t forget to subscribe to our blog for more articles on accounting and finance.
(1) What Assets Cannot Be Depreciated? (Ultimate Guide) – Tax Savers Online. https://taxsaversonline.com/what-assets-cannot-be-depreciated/
(2) What Assets Can’t Be Depreciated? Here’s What the IRS Says – Market Realist. https://marketrealist.com/p/what-assets-cannot-be-depreciated/
(3) Assets that Can and Cannot Be Depreciated | Accountingo. https://accountingo.org/financial/fixed-assets/depreciation/depreciable-and-non-depreciable/
(4) Assets which do not depreciate | AMPLIFY XL. https://amplifyxl.com/assets-which-do-not-depreciate/
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