J.K. Lasser's Small Business Taxes 2013: Your Complete Guide to a Better Bottom Line

Putting Personal Property to Business Use

You may already own some items that can be useful to your business, such as a home computer, office furniture, and a cell phone. You don't have to go out and buy new items for the business; you can convert what you already own from personal to business use.

For depreciation purposes, the basis of each item is the lower of its adjusted basis (usually its cost) or its value at the time of conversion. For most items that decline in value over time, this means that depreciation is usually based on value. But for other property, such as realty that typically increases in value, depreciation is usually based on adjusted basis.

Example

In 2011, you purchased a computer for home use at a cost of $3,000. In 2012, you start a business and begin to use the computer for business activities. Its value in 2012 is $1,000. For depreciation purposes, you are limited to $1,000; in this case the computer's value is lower than its adjusted basis.

Example

In 2010, you bought your home for $200,000. In 2012, you start a business from home and use 10% of the space exclusively for this purpose. The house is now worth $240,000. For depreciation purposes, you are limited to $20,000 (10% of $200,000); in this case the adjusted basis is lower than the home's current value.

You cannot use first-year expensing for property you convert from personal to business use in a year that is after the year you acquired the property. The law limits expensing to ...