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What is depreciation and how do I claim it?

Depreciation is the decrease in value of an asset over time. When filing your taxes, you can treat the depreciation of business property as a deductible expense. It is calculated using the cost of the property and its IRS stated useful life once it is placed in service.

Go to this section in Credit Karma Tax: Depreciation

Depreciation is recorded and deducted on Form 4562 in your tax return that we generate based on the information you provide in Credit Karma Tax.

Depending on the method you use, you can take a depreciation deduction each year over the useful life of your property until the cost is completely recovered:

  • For example, if you have a property with a useful life of 10 years that you bought new and paid $5,000 for on 1/1/2016 and you’re claiming straight-line depreciation on this item, you would be able to depreciate $500 of that property on your 2017 tax return ($5,000/10 years).

On the other hand, if you sell the property before the cost is fully depreciated, your deduction for that year will only be a portion of the depreciation amount for the full year:

  • For example, if you sold the asset mentioned above on 06/30/2017. Since you can only claim partial depreciation for the year of sale your depreciation for this asset on your 2017 tax return would be $250 ($5,000/10 years * 50%) rather than $500.

Source: irs.gov

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