Records for Depreciation, Basis, Carryovers, and Prepaid Expenses
For some tax items you must keep a running account, because deductions will be claimed not only in the current year but also in years to come.
Depreciation allows you to recover the cost of property over the life of that property by deducting a portion of the cost each year. In order to claim your annual deductions, you must keep certain records:
This information not only is necessary for depreciation purposes but will also be needed to calculate gain or loss and any depreciation recapture on the sale or other disposition of a depreciable asset. For full details on claiming depreciation, see Chapter 14.
The same recordkeeping rules apply not only to depreciation but also to amortization and depletion deductions.
Basis is the cost of property or some other value assigned to property. Basis is used for several purposes: It is the amount on which depreciation deductions are based, as well as the amount used to determine gain or loss on the sale or other disposition of property.
The basis of property can vary from its basis upon acquisition. Some items increase basis; others decrease it. Keep track of changes in basis. These can result from: