Can you take bonus depreciation on inherited property? This is a question that often arises among individuals who have inherited real estate or business assets. Bonus depreciation is a valuable tax deduction that allows businesses to immediately write off a portion of the cost of qualifying property. However, when it comes to inherited property, the rules can be a bit more complex. In this article, we will explore the eligibility criteria and the process of taking bonus depreciation on inherited property.
Bonus depreciation is a tax incentive provided by the IRS to encourage businesses to invest in new assets. Under Section 179 of the tax code, businesses can deduct the full cost of qualifying property in the year it was placed in service. This deduction is available for both new and used property, provided certain conditions are met. When it comes to inherited property, the question is whether the same rules apply.
Unfortunately, the answer is not straightforward. In general, you cannot take bonus depreciation on inherited property that was not purchased or acquired with the intention of using it in a business. The IRS considers inherited property as a gift, and therefore, it does not qualify for bonus depreciation. However, there are a few exceptions to this rule.
One exception is if the inherited property was used in a business before you acquired it. In this case, you may be eligible to take bonus depreciation on the property, but only to the extent that it was used in the business. For example, if you inherited a piece of equipment that was used in your father’s business for five years before you took ownership, you can only claim bonus depreciation for the five years of usage.
Another exception is if you elect to treat the inherited property as “depreciable property” under Section 179. This election allows you to treat the inherited property as if it were purchased or acquired for use in your business. However, this election must be made within the first year you own the property and cannot be changed in subsequent years.
It’s important to note that taking bonus depreciation on inherited property may have implications for your overall tax situation. Since bonus depreciation is an elective deduction, you may want to consult with a tax professional to ensure that you are making the best decision for your specific circumstances.
In conclusion, while you cannot take bonus depreciation on inherited property in most cases, there are exceptions that may apply depending on the usage history of the property. It’s essential to understand the rules and consult with a tax professional to determine if you are eligible for this valuable deduction. By doing so, you can potentially reduce your taxable income and improve your overall financial situation.
