 Most of this information comes from publication 946 how to depreciate property tax year 2022 you can find on the IRS website irs.gov irs.gov looking at the income tax formula we're focused online one income remember in the first half of the income tax formula is in essence an income statement but just an outline of scaffolding other forms and schedules flowing into these line items one of those being the schedule C the schedule C being an essence and income statement in and of its health business income minus business expenses gets to the net business income which flows in to line one income of the income tax formula we see here looking at the first page of the form 1040 noting that the schedule C flows into the schedule one which flows into page one of the form 1040 line number eight schedule C profit or loss from business has an income statement format income minus expenses we are focused here on the expense side of things looking specifically at the depreciation depreciation being and a cruel concept we're forced to deal with even if we're on a cashed based system because we have to put it on the books as an asset in essence according to the tax code allocate the cost over the useful life although we might have some special depreciation some 179 depreciation that could muddy up the waters so given that when does depreciation begin and end you might think it's a straightforward type of question here because you would think it would begin when you buy the equipment or whatever it is you're purchasing that you have to depreciate but it can be a little bit confusing in terms of when you're going to actually put that into operations and when you look at the conventions being used you might have different conventions like a half-year convention or a mid-month convention when you purchase certain types of depreciable property so when does the depreciation actually start can be somewhat more confusing than you would think at first so you begin to depreciate your property when you place it in service for use in your trade or business or for the production of income so clearly why are we buying the stuff it's an ordinary and business ordinary and necessary type of thing for business or related to consuming it for an ordinary or necessary purpose that's why it would be an expense so when we put it in place for the production of income revenue generation being our business goal then you would think that would be when you're going to put it on the books as a depreciable item so you stop depreciating property either when you have fully recovered your cost or other basis or when you retire it from service whichever happens first so if we purchase something for like let's say just $100,000 for a round number then we're going to put it on the books when we put the piece of equipment in service in service for use in our trade or business meaning for example if you had to include shipping costs or something like that in order to get it ready and in service then you would include it at the point in time that it's in service for business use then again you might use different methods to account for the depreciation in terms of when does the accounting calculation basically start is are you using a mid-month or mid-year convention depending on what's required or what options we have from the tax code and then of course you're trying to allocate that $100,000 over the useful life that's the general accounting concept meaning the cost should be allocated to the same period it was used to consume to generate revenue but the tax code could accelerate the depreciation for reasons other than generally accepted accounting or accounting principles to try to stimulate the economy using accelerated methods in the first years for example makers is a double declining balance method and then they might use 179 deduction special depreciation to deduct more upfront the general idea then would be after you've allocated the full $100,000 in that example you can't keep on depreciating after that point in time even if you're still using the piece of equipment in business which is likely if they allow you this big accelerated depreciation type of method because you can't depreciate more than the equipment actually costs that would be the general idea so you're going to fully depreciate the equipment over its useful life or whatever depreciable property you have or you might dispose of it before that time which means you might either sell it or you might just dispose of it just throw it away before it's been fully depreciated at which point you've got to calculate what's going to happen at that point in time in terms of possibly a gain or a loss at the point of sale or disposition okay