Depreciation is taken on business assets to deduct the expense of the asset over its useful life. Much like a business can deduct the expense of office supplies in the year they were bought, the purchase price of large assets are deducted over their useful life rather than in one lump sum during the year of purchase. The guidelines for depreciation on taxes are outlined by the Internal Revenue Service, as different assets have different useful lives.
Depreciation is a loss in value of an asset over time. When an asset is purchased for a business use, the business does not deduct the actual purchase price in the year the purchase is made; rather, the purchase price is deducted over the asset's useful life. The guidelines for a useful life are published by the IRS in publication 946: How to Depreciate Property.
You use form 4562 to take a depreciation expense. This form is used each year to record the amount of depreciation already taken as a deduction and track the useful life of your assets. Additionally, it tells the IRS how much depreciation you plan to take in the current fiscal year on your tax return.
Useful Life of a Work Truck
The useful life of a truck, as defined by the IRS, is a period of five years. This means that on form 4562, you would deduct the amount paid for the truck over a five- year period, unless you sell the asset before the five years are through. If you sell the asset before it is fully depreciated, you would claim the sale as a gain, including the amount already depreciated.
Amount to Depreciate
The amount you can depreciate for an asset is called the depreciable basis. This amount is equal to the cost of the asset multiplied by the business use of the asset, minus any deductions or credit attributed to the asset. The remaining amount, according to the IRS, is depreciated over the useful life of five years for a work truck.