How to Depreciate Donated Equipment
When running a business, the Internal Revenue Service gives you the option of taking a deduction for the loss of value in business equipment. If you did not pay for the equipment and instead had it donated to you, you still have the right to depreciate that equipment over its useful life. This means that each year of the equipment's useful life, you get to take a deduction on your tax return. When undertaking this process, it is important to do it right so that you maximize the amount of tax deduction you are entitled to.
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Instructions
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Determine the fair market value of the equipment that was donated to you. When you have equipment donated, the cost basis of the property becomes the fair market value of that equipment on the day that you receive it. To determine the fair market value, you could have the equipment appraised or look at what other similar equipment is selling for in the market.
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Get Form 4562 from the IRS. This can be downloaded directly from the IRS website.
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Enter the equipment that you are depreciating and the amount taken for depreciation. The method of depreciation does not have to be the same for all equipment that you depreciate. For example, you have the option of using straight line depreciation on some property and accelerated depreciation on others. Straight line depreciation involves taking the same amount of depreciation each year over the useful life of the property. For example, if you will depreciate $80,000 over four years, you take an equal deduction of $20,000 each year. With accelerated depreciation, you take a larger amount of deduction in the first few years and a smaller amount in the last few. For instance, with the double declining balance method, the percentage that you depreciate the property declines by half each year.
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Tips & Warnings
Consider using a Section 179 deduction on some of your property. Certain property qualifies for this type of deduction which allows you to avoid depreciating property over its useful life and simply take a deduction for the total fair market value or cost of the property.
Be careful when depreciating property. If the IRS does not agree with your fair market value estimations, you could face an audit.
