Bonus depreciation for items bought before business start date

[bimbayo]

Hi Experts,

I started a consulting business in  2023 (actually started the registration process in Dec '22 but my business license reads Feb 2023) and set up a home office for it.

With bonus depreciation I know that can depreciate qualifying assets. However, some of my office equipment was bought in 2022 while I was planning for the business. Is there a limit to when a qualifying asset must have been procured, or am I only allowed to depreciate assets bought after business regirtration?

Thank you.

bby

[RyanH5]

Hi bby,
When determining dates for depreciation of assets, the IRS  and tax code place emphasis on the placed in service date, rather than the purchase date. If you did not start your business until after January 1st, then, by definition, you could not have placed any assets in service before then either. All assets purchased before starting a business are placed in service on day 1 of the business.

I hope this helps.

[stella4am]

@RyanH5 What date should be used for an asset purchased before the business start date but during the "startup" period? For example, if a computer was purchased on 10/31/2023 and used for business purposes but the actual business wasn't open for operations/sales until 3/31/2024, what date should be used for "Enter the date that you first started using it for business" question in TurboTax? Officially the business started 3/31/2024 but the computer was being used for business purposes since 10/31/2023.

[DaveF1006]

 You can use 10/31/2023 as the date it was placed in service. The IRS considers an asset "placed in service" when it is ready and available for a specific use, regardless of whether the business has officially begun operations.

@stella4am 

[stella4am]

@DaveF1006 Thanks for the quick response! When I put the 2023 date, TurboTax asks about Prior Year Section 179 Deduction AND Total Depreciation Claimed in Previous Years (excluding 179 or first year special depreciation) on the following pages. Depreciation even has a calculated amount? It's the first time I've entered this Asset (was not included in last year's return) so I'm not sure why TurboTax is asking these questions. Should I just enter/replace with 0? If I put the 2024 official business start date for the asset, these 2 questions/pages do not appear.  

[DaveF1006]

 This is because depreciation is calculated from the time you put the computer in service. I would suggest moving the date to Jan 2024 so you can get the full depreciation amount for the first year and eliminate the questions you are being asked now.  

@stella4am 

[stella4am]

@DaveF1006 Thanks! In doing more research, I've read that the depreciation deduction allowance starts when the intended business begins ("equipment acquired and used during the startup period is not considered placed in service for depreciation purposes until active business begins").  It seems putting Jan 1, 2024 or the official business start date in 2024 doesn't make a difference so it seems the more conservative option would be to put the official business start date (when active operations began) as the place in service date?

[KeshaH]

Yes, you should use the date that business operations actually began in 2024. You would still get the same amount of depreciation for 2024 either way.