When does federal depreciation begin and end for newly purchased business assets?
Ask Blue J any tax question, then go deeper. Follow up, add client-specific context, and explore the sources behind every answer with Blue J’s generative AI solution for tax research.
Federal depreciation for newly purchased business assets is governed by the rules in the Internal Revenue Code (IRC), Treasury Regulations, and IRS guidance. The key principles for when depreciation begins and ends are as follows:
1. When Does Depreciation Begin?
Depreciation begins when the asset is "placed in service" for use in your trade or business or for the production of income. "Placed in service" means the date the property is ready and available for a specific use, whether or not it is actually being used at that moment. The asset does not need to be in actual use, but it must be ready and available for its intended business purpose.
- For example, if you purchase a machine and it is delivered and installed in December, but you do not actually use it until the following year, depreciation begins in December if the machine was ready and available for use at that time.
- If the asset requires assembly or installation, it is not considered placed in service until that process is complete and the asset is ready for its intended use.
- For real property, such as a building, it is placed in service when it is ready and available for its intended function (e.g., a rental property is ready for tenants, even if not yet rented).
Special Rules: For assets converted from personal to business use, depreciation begins on the date of conversion.- For certain assets, such as fruit or nut trees, depreciation begins when the asset reaches the income-producing stage (e.g., when the tree bears fruit in commercially viable quantities).
2. When Does Depreciation End?
Depreciation ends when you have fully recovered your cost or other basis in the property (i.e., when the total of your depreciation deductions equals your cost or basis), or when you retire the property from service, whichever occurs first.
Retirement from service occurs when the property is permanently withdrawn from use in your trade or business or from use in the production of income. This can happen due to:
- Sale or exchange of the property
- Conversion to personal use
- Abandonment
- Destruction (e.g., casualty loss)
- Transfer to a supplies or scrap account
If the property is temporarily idle (not in use), you continue to claim depreciation as long as it is still held for use in your business or for the production of income. For example, if a machine is temporarily not used due to lack of demand, but is still available for use, depreciation continues.
3. Summary Table:
In summary: Federal depreciation begins when the asset is placed in service (ready and available for its intended business use) and ends when the asset is fully depreciated or is permanently withdrawn from business use (by sale, abandonment, destruction, or conversion to personal use).
Was this answer helpful?
What Blue J customers are saying
“We are excited to use Blue J to elevate the initial work product our team is able to produce."
"We’re incorporating Blue J to ensure our people are well-equipped with a research tool that delivers on both ease of use and quality of deliverable. It will save us a lot of time as a starting point, so we can focus our efforts on the analysis. Ultimately, it helps us get to the right answer, faster.”
"We’re incorporating Blue J to ensure our people are well-equipped with a research tool that delivers on both ease of use and quality of deliverable. It will save us a lot of time as a starting point, so we can focus our efforts on the analysis. Ultimately, it helps us get to the right answer, faster.”
"We had used Checkpoint for a long time but found it wasn’t particularly well-used in our practice."
"A lot of our practitioners would have to turn to Google to find what they were looking for, which of course isn’t ideal. Blue J is a real game-changer when it comes to this, since it combines the efficiency of Google with the authoritative tax materials our people really need to serve their clients best. At ELO, we pride ourselves on providing services that are focused on value for clients and exceeding their expectations. Adding Blue J to our toolbox will enable us to do just that, as we continue to evolve our service offerings to better serve our clients’ needs.”
"A lot of our practitioners would have to turn to Google to find what they were looking for, which of course isn’t ideal. Blue J is a real game-changer when it comes to this, since it combines the efficiency of Google with the authoritative tax materials our people really need to serve their clients best. At ELO, we pride ourselves on providing services that are focused on value for clients and exceeding their expectations. Adding Blue J to our toolbox will enable us to do just that, as we continue to evolve our service offerings to better serve our clients’ needs.”
"We find this tool to be a game-changer for us and our clients.”
“We had the opportunity to pilot some other AI solutions in the market, and found that the improvement over traditional search was limited - except in Blue J’s case, where the efficiency gain over traditional research methods is significant."
“We had the opportunity to pilot some other AI solutions in the market, and found that the improvement over traditional search was limited - except in Blue J’s case, where the efficiency gain over traditional research methods is significant."
“Blue J is an exciting technology because it enables the practitioner to remain in the driver’s seat of the analysis."
"Thoughtful functions are included to encourage and facilitate deeper analysis, not to replace or reduce it. We’ll continue to find new and impactful ways to leverage the technology, which has benefited our clients and staff alike. At RSM we strive to be compelling to our clients and to be digital by embracing new technologies to fulfill that promise.”
"Thoughtful functions are included to encourage and facilitate deeper analysis, not to replace or reduce it. We’ll continue to find new and impactful ways to leverage the technology, which has benefited our clients and staff alike. At RSM we strive to be compelling to our clients and to be digital by embracing new technologies to fulfill that promise.”
"We wanted to have a tool that people were using at all staff levels."
"We wanted something that lived up on their third screen - something that would be available and helpful to them every day. What we've found is it's been easy to get people to get into the habit of using Blue J because it helps people. Blue J allows us to quickly respond to client questions in a way that they can understand it, which helps us deal with the volume of client questions that come in. We were up and running very quickly with Blue J - within 5 minutes, our staff understood how this will be helpful, and the rest of the training program is refining prompting skills and building use cases and best practices."
"We wanted something that lived up on their third screen - something that would be available and helpful to them every day. What we've found is it's been easy to get people to get into the habit of using Blue J because it helps people. Blue J allows us to quickly respond to client questions in a way that they can understand it, which helps us deal with the volume of client questions that come in. We were up and running very quickly with Blue J - within 5 minutes, our staff understood how this will be helpful, and the rest of the training program is refining prompting skills and building use cases and best practices."
