How to Depreciate a Computer for the IRS
If your computer is used for business purposes, you’re allowed to depreciate the cost of the computer as a business expense on your income tax return. The cost of the computer is recovered over a period of five years under the Alternative Depreciation System (ADS). A small amount of the cost of the computer is deducted each year using a percentage rate based on the year of business use for the computer.
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Instructions
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Calculate your basis for the computer. Your basis is either the amount you pay for the computer if it is purchased for immediate business purposes or the fair market value of the computer when it is placed in service. Use the fair market value when you convert the computer from personal use to business use. To determine the fair market value of a used machine, use the current sales price of the same model advertised in stores or classified listings.
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Obtain IRS Form 4562 and the Form 4562 instructions. These documents are available on the IRS website.
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Write your name, business activity and Social Security number in the boxes at the top of IRS Form 4562, Depreciation and Amortization. The business activity box only requires you to list the business schedule you attach to your tax return that reports the depreciation expense. For example, if you are self-employed and file Schedule C, write “Schedule C” in the business activity box. If you file more than one Schedule C, use a number to identify the business activity, such as “Schedule C #1.”
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Report your depreciation expense in Part III, line 19c. Write your basis for depreciation in column C. Your recovery period is five years. Write “5” in column D. Your convention is the Half-Year convention. Write “HY” in column E. Your depreciation method is the 150 Percent Declining Balance method. Write “150 DB” in column F.
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Look at the General and Alternative Depreciation System table in the Form 4562 instructions. This table is also called “Table B.” Note the percentage listed for the number of years you have had the computer in service for business reasons. You must use the percentages listed in the “5 Years” column.
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Look at the General and Alternative Depreciation System table in the Form 4562 instructions. This table is also called “Table B.” Note the percentage listed for the number of years you have had the computer in service for business reasons. You must use the percentages listed in the “5 Years” column.
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Multiply your basis for depreciation by the Table B percentage. The result is your depreciation expense for the year. Record the amount on Form 4562, Part III, column G for line 19c, and on line 22 of Form 4562. Record your depreciation expense on your business income tax return and attach Form 4562 to your return.
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