 So introduction. Depreciation is an annual income tax deduction that allows you to recover the cost or other basis of certain property over the time you use the property. So in other words, you got property, it's business property under normal kind of income tax deductions rules, you would expect if you consumed something, you bought something, for example, and you're consuming it in order to generate revenue, you should get that as an ordinary and necessary business expense. But if you're buying something that you didn't consume but you plan on consuming into the future, it's really more of an investment. So if I bought a forklift, I didn't consume the forklift today, I'm gonna use it for the next five years or whatever. So I should on an accrual basis or just conceptually, you would think that you wouldn't get the deduction until you consume the forklifts and allocate the cost over the useful life of the forklift. That's the standard accrual concept. But there will be exceptions in the tax code with accelerated depreciation methods and 179s and special and so on. So the tax code is weird. So it is an allowance for the where and tear deterioration and obsolescence of the property. So most property, you buy it, it goes down in value. Equipment, furniture, you buy it, it's gonna go down in value, you're gonna have to throw it away at some point in time or else revamp it, refix it, refurbish it or whatever you gotta do. The exception being usually real estate because real estate, although you still have to keep it up, at least the building part as opposed to the land part, it could go up in value for other reasons. It just goes up in value. So real estate is the odd ball. Most other pieces of equipment, you expect them to go down in value over time and therefore you allocate the cost as you consume those items to help you generate revenue. That's the concept of depreciation. So this chapter discusses the general rules for depreciating property and answers the following questions. What property can be depreciated? Obviously we wanna, and we also, you might rephrase that question as what property do I have to put on the books as an asset and depreciate as opposed to expensing at the point in time I purchase it from just simply a bookkeeping standpoint. What property cannot be depreciated? So what property do I not have the capacity to depreciate? You also might ask what property don't I have to depreciate but possibly get an expense at the point in time I purchase it as a normal business expense, right? And then when does depreciation begin and end? So when do I start the depreciation? Seems pretty straightforward when you buy the property but oftentimes if you buy it like in the middle of January or even the middle of January, you might have like a half year convention under the rules of makers rules and whatnot, meaning they kind of act like you purchased it in the middle of the year, which makes the calculation a little bit easier. Okay, and then what method and obviously when does it end? So there's gonna be a useful life and we're gonna have to determine what the useful life is. So how, when does the depreciation end? We base all the depreciations on like the straight line is the first method you wanna think about in your mind and then all these deviations makers, double declining balance, half year convention, half month convention are all just variations on the standard concept of taking a piece of property and just basically dividing it on biased useful life, straight line method and allocating that out, right? But now we've got all these funny things that are happening because sometimes it makes sense from a bookkeeping standpoint and sometimes it's just the tax code doing wacky stuff to try to manipulate whoever they're trying to manipulate to do whatever they're trying to make them do or whatever they're doing over there, cause they're crazy. So what method can you use to depreciate your property? So which method do you have to use? So we've got to be in accordance with the tax code. We're not using generally accepted accounting principles. We're not trying to use the method that most accurately allocates our property in accordance to an accrual accounting method for decision-making purposes. We're trying to maximize our tax benefits here.