Why Convert Personal Property to Business Use?
If you started a business or just realized you have items like computers, tools, furniture, or even a vehicle that you want to use in your business, there’s good news! Converting personal property to business use can reduce your taxes by way of depreciation deduction. This deduction is only available on property used to generate income such as in your business or investment.
IRS has specific guidelines for property conversion, which requires that you properly establish and assign the right financial value to the converted property. Once this is done the assigned value is called “adjusted basis” for depreciation purposes.
What is my adjusted basis?
According to the IRS rules a conversion from personal property to business use must be valued at the
- the fair market value at the time of the conversion, or
- the item purchase price plus any additions or improvements, and minus any deducted casualty losses, prior to the conversion
For example, if you bought a vehicle three years ago for $25,000, but its current value is only $12,000, the “adjusted basis” for depreciation purposes is the current value.
Typically, other than real estate, which does appreciate in value, things like computers, furniture, vehicles, or equipment usually depreciates from its original purchase price.
Considering converting personal property to business use? Get the details. Speak to our tax accountant for guidance. (212) 537-9060