 Most of this information comes from publication 946 how to depreciate property tax year 2022 you could find on the irs website irs.gov irs.gov looking at the income tax formula we're focused on line one income remember and 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 including the schedule see basically an income statement in and of itself business income minus business expenses given us net business income which would flow into line one income here of the income tax formula the first page of the form 1040 noting that the schedule see would flow into the schedule one flowing into the first page of form 1040 line number eight the schedule see is a profit or loss from business form having an income statement format of income minus expenses we're focusing focusing this time on the expenses specifically on the depreciation remembering that even if you're on a cash based system if you have large purchases you're gonna have to deviate from the cash based system why because the tax code forces you to generally to put them on the books as an asset which you can't see on the tax return because we only have an income statement if you're talking about a schedule see but we're going to be able to depreciate them using the depreciation schedules allocating the cost over the useful life in accordance with the matching principle and a cruel concept although the tax code can get crazy and start deviating from that concept by using accelerated depreciation methods 179 special depreciation and so forth all right that given let's talk about an office in the home we've got an office in the home if you use part of your home as an office you may be able to deduct depreciation on that part based on its business use so meaning now we have a home we've got an office in the home that's a business part of the home the question then is going to be do I get to deduct the home office so there's multiple things related to the deduction of the home office because you might have the utility bill that's paid for the entire home you might have other you know water bill and so on that's paid for the entire home but you might be able to allocate a portion of it to the office you would think because it would be an ordinary and necessary business expense if you're allowed to have the home office the other portion of that that might be applicable is depreciation because normally the home is a personal asset and for our income tax normal tax standards then we would think the only thing you'd get to deduct normally are those expenses that you incurred in order to generate revenue there's a lot of exceptions to that general rule when we think about a schedule a for example where we might be able to deduct the home mortgage interest and things like that the property taxes and things like charitable deductions those are all kind of weird type of deductions that are deviations from the general rule of deducting something that was consumed in order to generate revenue but the personal home is personal so you would think in general you wouldn't be able to deduct the depreciation related to it but if you use the home as an office you would think you would get a portion of that depreciation as depreciation expense so right here we're focused on the depreciation expense itself as part of in dovetailing on to that concept of a home office notice that if someone was renting a home then the rent itself that they're paying might be part of the home office deduction they wouldn't have depreciation it's only if they owned the home that then you've got this depreciation that might add into or factor into this a home office kind of situation so for more information about depreciating your home office you could see publication 587 so what property cannot be depreciated certain property cannot be depreciation this includes land and certain exempted property so normally when we think about things that are going to be depreciated we're putting them on the books as an asset as opposed to expensing them because they're going to be a long lived type of items and we want to allocate the cost to the period that it's being consumed however when we think about land it's not being consumed in human lifetimes because the land doesn't deteriorate as the building that sits on the land does as does every other kind of thing that we buy for business typically like equipment for example furniture and so on so terms you may need to know the glossary we've got amortization similar to depreciation amortizing over time a basis that's kind of like the the cost in essence of the property goodwill this is an intention a type of intangible concept intangible property intangible property can't touch it it still has value but it's intangible because you can't touch it remainder interest and term interest okay given that let's jump into it land you cannot depreciate the cost of land because land does not wear out become obsolete or get used up so although we are using the land to help generate revenue the land hasn't been consumed it's not going away to help generate revenue and that's kind of the argument as to why we're not going to allocate the cost of land or the use over the useful life because in theory the land's useful life is beyond our human useful life