Fixed Assets

[Countingcat]

We have paid for half of a piece of equipment for our business in 2024. The remainder will be paid in 2025 with the equipment being delivered in February. We use cash accounting. How do I record the payments made in 2024? This is a depreciable asset.

[MinhT1]

As the equipment is placed in service in February2025, you can only enter it as an asset and start depreciating it in 2025.

In 2024, you do not record the payment made in 2024 as an expense. If you have to submit a balance, it would be a current asset called Prepayment.

[VolvoGirl]

You don't enter what you paid.  You enter it as an ASSET and  take depreciation on it.   The deprecation is the expense.  If you paid any interest on it  you can expense the interest.  

[Countingcat]

Can I show the payments made this year as payments toward a liability?

[Countingcat]

Is there any provision for expensing what we have paid so far on this asset? We had to pay a certain amount down just to place the order. The equipment is manufactured and customized when the order is placed and takes several months to complete. It is common for such equipment to bridge calendar years. The total cost is about $600,000 and we have paid about 50% in 2024.

[Shannon B1]

Since you haven't received the asset yet, you can't expense the amount you paid in 2024. It's considered a deposit, and deposits aren't expenses.

For your 2025 taxes, you'll record the equipment as a fixed asset for the full amount you paid and take a depreciation expense.

You can only deduct the interest portion of any payments you made in 2024.

[840G2User]

I'm in a similar situation (using cash accounting and putting deposits or paying outright for assets in 2024 but not placed into service until 202). So if I understand this right, for 2024 I'll create an asset for the prepayments for equipment (can I create one asset to cover multiple pieces of equipment?), but no related in expenses. This will show up on my balance sheet (and turbotax basically requires a balance sheet). So I would have additional paid-in capital, some of which went to this prepaid asset. 

In 2025, I'll enter each asset in turbotax for the full amount paid for each and start depreciating them (or taking section 179?). I'll also eliminate the prepaid assets because they are now included in the assets that are being depreciated. 

This sounds straightforward, but I have the sneaking suspicion that I'm going to get messed-up by the balance sheet somehow because this is spanning a couple years and I'm doing things on a cash basis.

[PatriciaV]

No, you do not record any assets until they are actually used in your business (placed into service). 

The deposits you paid could be shown as an Other Current Asset on the balance sheet. But the cost would not be an expense.

When the assets are placed into service, you have several options to fully expense (depending on the type of asset and the individual cost), take accelerated depreciation (Section 179 or Special "Bonus" Depreciation), and/or depreciate the remaining balance over the rest of the asset's useful life.

In most cases, you should enter each asset separately to allow for future changes in business use or in case of a sale. However, you can combine assets of the same class (furniture, for example) if they are placed into service on the same date.

Additional Information:

• What is Depreciation?
• What can I expense or depreciate with the business safe harbor election?
• What is a Section 179 deduction?
• IRS Pub 946 - Special Depreciation

@840G2User 

[840G2User]

Thanks! This makes a lot of sense. I very much appreciate the thorough reply.