Depreciation of equipment occurs over the useful life of the product, as the IRS reports. All items must have a useful life longer than one year to be depreciated on a tax return. Used items likely have a shorter total lifespan and have a shorter depreciation period.
Depreciation may be used as a business tax deduction, per the IRS. Using depreciation, businesses may reduce total taxes owed and lower the cost of investments made in the business through equipment purchase. Form 4562 is used to determine the depreciated value of equipment for business use. All equipment must be used exclusively for business purposes to be claimed for depreciation.
Depreciation values depend on the cost of the equipment, as the IRS states. Equipment must last one year or longer to be depreciated and used items typically have a shorter life than new products. For tax purposes, the used equipment may be depreciated according to the IRS rules for depreciation of agricultural machinery. The exact depreciation method depends on the industry and type of farming.
Depreciation may be determined using tables or calculated using a fixed percentage. Farm equipment depreciation typically recovers the most during the early years of equipment use, according to the IRS.