Should I capture computer cost as part of my Startup cost? or should I capitalize and depreciate? If yes, can I depreciate even without start my operations?

[fernando-yamamot]

My startup cost is way over $50k, so I understand the amortization part (180 months after operation started). I am not sure how to treat the computers, if i need to capitalize and depreciate, but I am not sure if i can start depreciation without operations started yet.

[Rick19744 · Accepted solution]

Tangible asset acquisitions are not part of start-up costs.

Generally, a business is entitled to claim depreciation deductions for property beginning in the year the property is “placed in service.” Similar rules apply to Section 179 deductions and “bonus depreciation” deductions, as well as certain other tax law provisions.

Based on the above, it appears that a taxpayer could be using property even though the business has not yet started.

The IRS position is that depreciation does not begin until the business has started.  While there was a case that allowed for bonus depreciation based on the facts of the case, the IRS has issued an Action on Decision (AOD 2017-02) that it will not follow that court decision.  The IRS bases its decision on a number of other cases in their favor.

Bottom line, I would recommend that you start depreciation in the month you have begun business.