8611 / What is the deduction for depreciation?
Only property that has a limited useful life may be depreciated. Land does not have a limited life and, therefore, cannot be depreciated. However, the improvements on land can be depreciated. Inventory and stock in trade are not depreciable.3 A taxpayer who purchases a term interest in property cannot amortize or depreciate the cost of the property during any period in which the remainder interest is held by a related person.4 On the other hand, life tenants and beneficiaries of estates and trusts may be allowed the regular depreciation deduction if the property is depreciable property.5
The method used to determine the rate of depreciation depends on when the property was placed into service. Property is “placed into service” when it is first placed in a condition or state of readiness and availability for a specifically assigned function for use in a trade or business, for the production of income, or in a tax-exempt or personal activity.6 See Q for a discussion of the bonus depreciation rules that apply post-tax reform.
1. IRC §§ 167(a), 168(a), as amended by ATRA and Pub. Law No. 115-97 (the 2017 reform legislation).
2. IRC §§ 62(a)(1), 62(a)(4).