Why it matters
Depreciation changes the annual deduction and the book value of the asset. When the asset is sold, the depreciation taken affects the gain or loss and may need to be recaptured.
Example
A business buys a $30,000 machine with a five-year recovery period. Instead of deducting $30,000 in the first year, it deducts the depreciation allowed each year and keeps a schedule of the accumulated depreciation.
Related terms
Questions about Depreciation
Can a business deduct the full cost of an asset in the first year?
Sometimes. Section 179 and bonus depreciation may allow a larger first-year deduction for qualifying property. The rules and limits change, so the tax preparer should confirm before the return is filed.