Anything you buy for work that is more than the de minimis safe harbor ($2500) and has an expected useful life of more than one year, is an asset that must be depreciated. You are probably eligible to take section 179 depreciation, which is a way to take the entire amount in the first year, but it is still depreciation and not an expense and has certain future implications. Also, because you are a W-2 employee, any depreciation you claim will be reported on form 2106 as an itemized deduction subject to the 2% rule, so your actual tax benefit may be limited, and if you qualify for section 179 you should take it. List the instrument as an asset in the business expense section and let the program tell you if you are qualified for section 179. The class life for musical instruments is 7 years.
Depreciation is a tax concept that has nothing to do with real value. However, it has tax consequences if and when you sell or gift the instrument. As of now, your cost basis is the purchase price. If you sell the instrument for more than the basis, the difference will be long term capital gains income. If you take depreciation, that reduces your cost basis by the amount of depreciation. So after 7 years under standard depreciation, or after 1 year under section 179, your cost basis is zero. When you sell the instrument, the entire sales proceeds are capital gains subject to tax. The first $18,500 is "depreciation recapture" and is taxed at a straight 25%, the remaining gain will be taxed at whatever the current long term capital gains rate is.
So claiming depreciation is a tax deduction now, but you will have to pay that back later. Due to financial concepts like "future cost of money" it is still usually better to take depreciation.
The only out is if you pass the instrument to someone else after you die. Your heir will receive a "Stepped up" basis equal to the fair market value on the date of your death. Otherwise, if you sell in the future, you will owe capital gains tax (with recapture if you take depreciation now). Also, if you take section 179 and then stop using the instrument for work before the 7 year recovery period is up, you owe recapture tax on the unused part of the depreciation even if you don't sell the instrument.
If you gift the instrument, you also give the recipient your cost basis at that time (which could be $18,500 or zero), which has implications if they later sell it.
If you donate the instrument, the value of the tax deduction may be its present market value or your cost basis, depending on who you donate to. If your basis is zero due to depreciation, the tax deduction value may also be zero.
