Depreciation From Last Year--Can I Increase Percentage of Business Use Claimed This Year?

[Taxathrone]

In 2019, I began using a personal computer I had for 100% business use in February of that year, so, when TurboTax asked "Have you used this item 100% for this business since you acquired it?" I answered No and selected that "I used this item for personal purposes before I started using it in this business."  Then, I entered the date in February for "Date I started using it in this business" and calculated about 90% as my business use in 2019 (since January-February had been personal use) and entered that as my "Percentage of time I used this item for this business in 2019."

In 2020, I used this computer the whole year for business use 100%, so can I up the "Business %" use to 100% in the TurboTax entry for it? I would assume yes, but the TurboTax "Learn More" panel says this about the entry:

"The only time you should change any prior year asset information is if it does not accurately reflect the information in your prior year return, or if your business use drops to 50% or less."

Any knowledgeable guidance on this is appreciated!

[MaryK4]

You cannot change the depreciation amount you CAN claim, but if the business use percentage changes, you will deduct more with the increased use.  For example, if your depreciation amount for each year is $5000, in 2019 you claimed 90% of that amount and in 2020 you will claim the entire $5000.

Depreciation is the recovery of the cost of the property over a number of years. You deduct a part of the cost every year until you fully recover its cost.

[Taxathrone]

@MaryK4 -- I understand what you're saying, and just to be clear, when I am editing the depreciating computer asset (pulled in from last year) via the Business Asset Summary panel in TurboTax 2020, the IRS allows editing the "Business %" from 90% (the percentage that was accurate for 2019) to 100% (the percentage of use accurate for 2020)?

Or is the business % use set on the first year that deprecation of the item is claimed on taxes, and does tax law not allow changing the business use percentage of the depreciating asset in subsequent years?

[DianeW777]

Yes, you can change the percentage to 100% for the 2020 tax year.  This is not a problem at all, you will want to track the depreciation you used the first year for the future sale or disposition of the computer.

No, you do not have to maintain the business use percentage from the first year because it can fluctuate with certain assets that are easily convertible from business use to personal use such as vehicles.  These items are called 'Listed Property'. This is a tax term for items that were specifically put on a list.  Cell phones have been removed from this  list and are no longer 'Listed Property'

Listed Property:

Listed property includes cars and other property used for transportation, property used for entertainment, and certain computers.

• See IRS Publication 936 for more information. (This is 2019 because the IRS has not completed the 2020 version.)

@Taxathrone - The answer has been updated, appreciate the reminder.

Note: Computers and peripheral equipment removed from listed property treatment.—Effective for
property placed in service after December 31, 2017, computers and peripheral equipment are removed as a category of listed property (Code Sec. 280F(d)(4)(A), as amended by the Tax Cuts and Jobs Act (TCJA). As a result, the cost of computers and peripheral equipment can be deducted or depreciated like other business property and are no longer subject to the strict substantiation requirements of Code Sec. 274(d).

[Edited: 03/10/2021 | 5:57a PST]

[Taxathrone]

@DianeW777 -- thanks for your response, which is very helpful, Diane!

One thing to point out, though--computers are actually no longer considered listed property by the IRS:

Computers No Longer Listed Property

Effective 2018, under the Tax Cuts and Jobs Act, computers are no longer considered "listed property." Listed property generally includes items that can easily be used for personal as well as business purposes, such as cars, cameras, stereos, and--prior to the Tax Cuts and Jobs Act--computers. The IRS has more stringent recordkeeping rules for these items to make sure they are in fact used for business and not personal purposes.

Under prior law, there was a partial exception to the recordkeeping requirement for computers. Namely, if you used a computer or computer peripheral (such as a printer) only for business and kept it at your business location, you did not have to comply with the listed property recordkeeping requirements. Effective 2018, there are no recordkeeping requirements for any business use of computers.

- source: www.nolo.com/legal-encyclopedia/deducting-computers-bought-work.html