Can I Deduct Computer Cost If Only Starting Using it a Lot for Business in Year 2 of Business?

[messner8000]

Thank you for the response.  However, if I listed it as an expense and not an asset, isn't it the case that I can't depreciate it over 5 years? From other TurboTax responses in this chain, my understanding is I have to depreciate it (and thus have to list it as an asset?) because in Year 1 I only used it 5% for business, and in future years I will use it 60% for business  Thus, I can't claim the entire computer amount as an expense this year.  Thanks. 

[messner8000]

Sorry for the second response, but I just saw the other response.  I think I need to provide some more details (since I think the computer is for business use): 

I bought the computer for $802 in July 2021. I had not opened my business, but I was in the "start up" phase and while I used the computer principally for personal use when I bought it, I bought a good computer knowing I would use it for my business when I went "live" in December.  I used it for business a small amount (say, 5%) from July through November (e.g., I used it for the business use of designing my webpage).  Admittedly, for 2021 it was principally for personal use, but not entirely.  Under these circumstances, I think I could claim it as a business asset and depreciate it.  And if so, how do I do that in TurboTax? Thanks!!

[ThomasM125]

To enter the asset in TurboTax for depreciation, edit your business entry and look for the screen that says Your Business. Then choose the Assets Being Depreciated option and follow the instructions to enter your business asset.

[messner8000]

But it won't let me depreciate assets below $2500...

[DaveF1006]

Yes, you will be able to deduct 60% of the computer cost for 2021 as an expense if the cost of the computer is less than $2500. This is a one-time deduction.

[messner8000]

Thanks! I will admit I am now confused. I'll try one last time, but I know this chain is getting long... 

I bought my $802 computer in July and the percent I am using it for business is: 

2021: 5%

2022-2025: 60%

You said in your response I could deduct 60% of the total cost in Year 1.  That strikes me as strange because I'm not using it for 60% business (either in Year 1, or on average over all 5 years).  Can you point me to an IRS guidance document that supports this interpretation? Also, I read the responses from ColeenD3 and DMarkM1 to say that based on my facts I need to depreciate (which is why I'm trying to figure how how to do that for assets under $2500).  Thanks!!

[DianeW777]

Let me try to simplify the correct action and options for 2021.  First, we cannot use information that has not occurred yet.  What this means is that it is interesting that your intent is to use it 60% of the time for business in future years, but it's not yet a fact.

• Note: Time of use for business vs time of use for all purposes (personal purposes) is the correct way to determine business use percentage.

In 2021, you can make the De Minimis Safe Harbor election (business asset cost less than $2,500) and deduct only 21% of your computer expense. This is a reasonable assumption because if you were depreciating the item, you could depreciate 20% of the 21% of the cost in year one under the regular depreciation method.  IRS FAQs for De Minimis Safe Harbor

• Navigate to the Other Common Business Expenses section to enter the deduction under Other Miscellaneous Expenses. Enter a De Minimis Safe Harbor as your description and enter the 21% amount.

OR

You can choose to depreciate the 21% business use portion of the cost in 2021 (recommendation would be to use the allowable election above). This means you would get 20% of the 21% business use percentage as your depreciation deduction if you enter the computer asset that has a 5 year recovery period. 

• IRS Publication 946 (Section 179 does not apply for you in 2021)

If you choose to use the election in 2021, then in 2022 when the business use percentage changes you must depreciate the remaining business use balance. You will not be allowed to use the De Minimis Safe Harbor election after the first year an asset is placed in service.

• Cost x business use percentage - the amount expensed in 2021 = cost basis used for depreciation in 2022.

[messner8000]

Thanks so much! So just to confirm I understand, if I don't want to depreciate the asset (and to simplify things, I don't!) this is what I can do/how it works: 

Even though I am only using the computer for business 5% of the time in 2021, I can still make a deduction this year using the de minimis safe harbor election.  Under this election, I can deduct 21% of the total computer cost ($802) on my 2021 return, and then will simply ignore the computer expense on all future tax returns.  Do I have that right? It never would have occurred to me I could claim a $168 deduction (.21 x $802) this year when most of the computer's business use is in the future! 

Do I have things right? Thanks!

[RobertB4444]

You got it correct.