I plan to expense everything I can in the state to reduce the taxable income. Are there any rules or guidelines about this? My understanding is that I can choose to expense or depreciate.
Generally, you have to depreciate assets. In a nutshell, a business asset is something with a life expectancy of more than one year, that is used on a recurring basis to produce income. The IRS does have provisions to allow you to just expense an asset. If the asset cost less than $2,500 then you can expense it. But there are exceptions. For example, for some things that cost less than $2,500 on SCH E rental property, if it becomes "a material part of" the structure, you have to depreciate it regardless of cost. But there's even exceptions for that too.
Many states follow the IRS guidelines on this. But they don't have to for state taxes.
When it comes to depreciation there's one thing to keep in mind. Depreciation is *NOT* a permanent deduction. All depreciation is recaptured and taxed in the tax year you sell or otherwise dispose of the property. Two things to be aware of about recaptured depreciation.
1. Recaptured depreciation is added to and therefore increases your AGI in the tax year of recapture.
2. Recaptured depreciation has the potential to bump you into the next higher tax bracket, depending on the numbers. So if it makes your AGI to high, that could automatically disqualify you for other deductions and credits you would otherwise get.
