How often may the depreciation be deducted?

Can the entire acquisition cost of a computer that I purchased for my business be deducted as a business expense or do I have to use depreciation?

• Answer:

  The entire acquisition cost of a computer purchased for business use can be expensed under Code section 179 in the first year if qualified, or depreciated under MACRS (Modified Accelerated Cost Recovery System) over a 5-year recovery period. Under section 179, you can elect to recover all or part of the cost of certain qualifying property, up to a dollar limit, by deducting it in the year you place the property in service. You can elect to expense the cost of qualifying property instead of recovering the cost by taking depreciation. To claim the expense in the first year, the property must be used more than 50% for business use, and meet the other requirements for expensing. One of those requirements is that the total cost of qualifying property you can deduct after you apply the dollar limit is limited to the taxable income from the active conduct of any trade or business during the year. Any cost not deductible in one year under section 179 because of the business income limit can be carried to the next year. If substantially all of the use of the property will be in the active conduct of a trade or business in the New York Liberty Zone or the GO Zone (a specified area affected by Hurricane Katrina) there are increased section 179 deductions available (through section 1400L(f) and section 1400N(e) of the Code) and there are different rules for a one time special or bonus depreciation allowance which is an additional deduction equal to 50% (or 30% for New York Liberty Zone property) of the property's depreciable basis (after any section 179 deduction and before figuring your regular depreciation deduction under MACRS for the year you place the property in service).