Tax Information for Small Businesses
CONSTRUCTION - Depreciation IRC Section 167(a), 168 &
What is Depreciation?
• Property used for business
• Property expected to last more than one year
• Represents wear, decay, usage, obsolesce, or loss of value due to natural
What can be Depreciated?
Any building or structure built on land; plants or trees grown on land; and
attachments or improvements to land
Cars, trucks, machinery, furniture, equipment, and all other tangible items which
are not real property
What cannot be Depreciated?
• Property placed in service and disposed of in the same year
• Repairs and replacements that do not increase the value of your property;
make it more useful; or lengthen its useful life
How to Figure Depreciation
• Class Life
• Placed in Service Date
• COST BASIS: Usually the purchase price, including sales tax, freight, and
• ADJUSTED BASIS: Increase cost basis by improvements. Decrease basis by
Adam bought a dump truck from a local contractor. He paid $2,000 cash,
borrowed $3,000 from the bank, and agreed to dig the foundation for the
contractor’s lake cabin (worth $1,000). The cost basis for the dump truck is
• 3-year Property
o Tractor units used over the road.
• 5-year Property
o Any construction property that does not have a class life.
o Automobiles, taxis, buses & trucks.
o Computers & peripheral equipment.
o Office machinery, such as typewriters, calculators, & copiers.
o Property used in research & experiments.
• 7-year Property
o Office furniture & fixtures
• 15-year Property
o Land improvements, such as shrubbery, fences, roads, & bridges.
o Service stations, but not the pumps.
o Nonresidential real property.
Placed In Service Date
Depreciation is taken when the property is ready and available for use in your