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Is A Property Depreciable?

For a property to be depreciable, four things must be established with respect to the property:

  1. The property must be eligible property, meaning it must be tangible property not subject to amortization or for which an election was made to depreciate under a method not based on a term of years, 
  2. The property must have been placed in service after 1986 (MACRS must be used after 1986), 
  3. Per IRC Sec 167, it must be subject to exhaustion, wear and tear, or obsolescence, and 
  4. Per IRC Sec 167, it must be used in a trade or business.

Before deciding, consider an issue that sometimes comes into play as to whether an item can be depreciated in the first place. For instance, items that appreciate will fail test #3 above. Such items would include fine art, antiques and the like that might be used as decorations at a place of business. Back in 1968 the IRS issued Rev. Rul. 68-232 holding that: Valuable and treasured art pieces do not have a determinable useful life. While the actual physical condition of the property may influence the value placed on the object, it will not ordinarily limit or determine the useful life. Accordingly, depreciation of works of art generally are not allowable. There have been numerous court cases over this issue with varying outcomes. The conservative approach is to treat items that fail test #3 as non-depreciable.

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