 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 on line one income remember in the first half of the income tax formula is in essence an income statement but just an outline other forms and schedules flowing into these line items one of those the schedule see having business income minus business expenses giving us the business net income from the schedule see in essence rolling into line one income of the income tax formula page one of the 1040 noting that the schedule see would roll into the schedule one rolling into the form 1040 page one line number eight the schedule see is the profit or loss from business which has an income statement format income minus expenses we're focused on the expenses and more particularly or precisely on the depreciation expense remembering that we may have to deviate even if using a cash based system to an accrual concept when we make purchases of the depreciation and then we're subject not to generally accepted accounting rules but to the tax code where we have different objectives for depreciation our objective as the tax preparer and the taxpayer is usually to try to depreciate as much as we legally can up front because that's usually best for taxes a different objective than what we might have for the bookkeeping side of things okay that said what is the basis for depreciation we can think of the basis as similar to kind of like the cost of the adjusted cost of some kind so the basis for depreciation of maker's property is the property's cost or other basis multiplied by the percentage of basis investment use meaning obviously if we use the thing a hundred percent for business then that would be basically in essence the cost or basis but if we use it partially for business and something else like personal use then we might have to allocate which is for business versus personal which gets a little bit more messy so for a discussion of business investment use see the partial business or investment used under property used in your business or income producing activity in chapter one reduce that amount by any credits and deductions allowable to the property the following are examples of some credits and deductions that reduce the basis now as a general rule remember that when we buy something if we just bought equipment let's say it was a hundred percent for business that would in essence be the cost or basis the basis or cost being good in essence in that we want to be able to get the deduction related to that basis or cost which under normal depreciation would be like an expense from a straight line standpoint it would just be an equal amount over the life of the asset what we would like to do is get more benefit from that basis that cost upfront if we do get more benefit upfront then we get the benefit right of the expense upfront but we also have to decrease the basis or adjusted cost which means that we're going to have a lesser benefit going out in the future we're eating up the benefit upfront we want to eat that cost or that basis faster usually because that's going to be the best strategy for taxes because we get the tax benefit sooner so for example if we had a deduction for section 179 property you can kind of think of that as though we got a whole lot of depreciation possibly the whole thing in year one similar to as if we just got to expense it in year one why do I have to go through this whole capitalization business in the first place if you're just going to let me expense the whole thing might be your thought process in this case and win this situation but then you would think okay now I got the depreciation in year one I no longer have any basis left over to take in future years which is okay because I would rather take it in the first year usually anyways you've got any deduction under the section 179 b of the internal revenue code for capital cost to comply with environmental protection agency sulfur regulations similar concept any deduction under 179 d similar situation of the internal revenue code for certain energy efficient commercial building property any deduction for removal of barriers to the to the disabled and the elderly why would this one be here well you might you might get like a benefit from it so if you get like a credit from doing it or something like that then you would think that you already got kind of a benefit from it and if you also got the expense maybe that would be kind of double dipping so you might have a situation where that where that comes into play