Business Furniture and Equipment This section discusses the depreciation and section 179 deductionsyou may be entitled to take for furniture and equipment that you usein your home for business or work as an employee. These deductions areavailable whether or not you qualify to deduct expenses for thebusiness use of your home. This section explains the different rules for each of thefollowing. Listed property. Property bought for business use. Personal property converted to business use. Listed Property If you use certain types of property, called listed property,in your home, special rules apply. Listed property includes anyproperty of a type generally used for entertainment, recreation, andamusement (including photographic, phonographic, communication, andvideo recording equipment). Listed property also includes computersand related equipment unless they are used in a qualifying office inyour home. If you use your computer in a qualifying office in yourhome, see Property Bought for Business Use, later. More-than-50%-use test.If you bought listed property and placed it in service during theyear, you must use it more than 50% for business (including work as anemployee) to claim a section 179 deduction or an accelerateddepreciation deduction. If your business use of listed property is 50% or less, you cannottake a section 179 deduction and you must depreciate the propertyusing the Alternate Depreciation System (ADS) (straight line method).For more information on ADS, see chapter 3 in Publication 946. Listed property meets the more-than-50%-use test for any year ifits qualified business use is more than 50% of its total use. You mustallocate the use of any item of listed property used for more than onepurpose during the year among its various uses. You cannot use thepercentage of investment use as part of the percentage of qualifiedbusiness use to meet the more- than-50%-use test. However, you do usethe combined total of business and investment use to figure yourdepreciation deduction for the property. Example 1.Sarah does not qualify to claim a deduction for the business use ofher home, but she uses her home computer 40% of the time for abusiness she operates out of her home. She also uses the computer 50%of the time to manage her investments. Sarah's home computer is listedproperty because it is not used in a qualified office in her home.Because she does not use the computer more than 50% for business, shecannot elect a section 179 deduction. She can use her combinedbusiness/investment use (90%) to figure her depreciation deductionusing ADS. Example 2.If Sarah uses her computer 60% of the time for her business and 30%for managing her investments, her computer meets the more-than-50%-use test. She can elect a section 179 deduction. She can use hercombined business/investment use (90%) to figure her depreciationdeduction using the General Depreciation System (GDS). Employee.If you use your own listed property (or listed property you rent)in your work as an employee, the property is business-use propertyonly if you meet the following requirements. The use is for the convenience of your employer. The use is required as a condition of youremployment. "As a condition of your employment" means that the use of theproperty is necessary for you to properly perform your work. Whetherthe use of the property is required for this purpose depends on allthe facts and circumstances. Your employer does not have to tell youspecifically to use the property. Nor is a statement by your employerto that effect sufficient. Years following the year placed in service.If, in a year after you place an item of listed property inservice, you fail to meet the more-than-50%-use test for that item ofproperty, you may be required to do the following. Figure depreciation, beginning with the year you no longeruse the property more than 50% for business, using the straight linemethod. Figure any excess depreciation and section 179 deduction onthe property and add it to: Your gross income, and The adjusted basis of your property. For more information, see Years After the First RecoveryYear under Applying the Predominant Use Test inPublication 946. Reporting and recordkeeping requirements.If you use listed property in your business, you must file Form4562 to claim a depreciation or section 179 deduction. Begin with PartV, Section A, of that form. Files: You cannot take any depreciation or section 179 deduction for theuse of listed property unless you can prove your business/investmentuse with adequate records or sufficient evidence to support your ownstatements. Hilton Skopje HotelTo meet the adequate records requirement, you must maintain anaccount book, diary, log, statement of expense, trip sheet, or similarrecord or other documentary evidence that is sufficient to establishbusiness/investment use. For more information on what records to keep,see What Records Must Be Kept in chapter 4 of Publication 946. More information.For more information on listed property, see chapter 4 inPublication 946. Property Bought for Business Use If you bought certain property to use in your business, you can doany one of the following (subject to the limits discussed later). Elect a section 179 deduction for the full costof the property. Take part of the cost as a section 179 deductionand depreciate the balance. Depreciate the full cost of the property. Section 179 Deduction You can generally elect to claim the section 179 deduction ondepreciable tangible personal property bought for use in the activeconduct of your business. You can choose how much (subject to thelimit) of the cost you want to deduct under section 179 and how muchyou want to depreciate. You can spread the section 179 deduction overseveral items of property in any way you choose as long as the totaldoes not exceed the maximum allowable. You cannot take a section 179deduction for the basis of the business part of your home. You elect the section 179 deduction by completing Part 1 of Form4562. Deduction limits.The section 179 deduction cannot be more than the business cost ofthe qualifying property. In addition, you must apply the followinglimits when figuring your section 179 deduction. Maximum dollar limit. Investment limit. Taxable income limit. Maximum dollar limit.The total cost of section 179 property you can elect to deduct for1999 cannot be more than $19,000. This maximum dollar limit is reducedif you go over the investment limit (discussed next) in any year. Investment limit.If the cost of your qualifying section 179 property is over$200,000, you must reduce the maximum dollar limit ($19,000) for eachdollar over $200,000. Taxable income limit.The total cost you can deduct each year is limited to your totaltaxable income from the active conduct of all your trade or businessactivities, including wages, during the tax year. Figure taxableincome for this purpose in the usual way, but without regard to all ofthe following. The section 179 deduction. The self-employment tax deduction. Any net operating loss carryback or carryforward. More information.For more information on the section 179 deduction, see chapter 2 inPublication 946. Depreciation Use Part II of Form 4562 to claim your deduction for depreciationon property placed in service during the year. Do not include anycosts deducted in Part I (section 179 deduction). Most business property used in a home office is either 5-year or7-year property under MACRS. 5-year property includes computers and peripheralequipment, typewriters, calculators, adding machines, andcopiers. 7-year property includes office furniture andequipment such as desks, files, and safes. Under MACRS, you generally use the half-year convention, whichallows you to deduct a half year of depreciation in the first year youuse the property in your business. If you place more than 40% of yourdepreciable property in service during the last 3 months of your taxyear, you must use the mid-quarter convention instead of the half-yearconvention. After you have determined the cost of the depreciable property(minus any section 179 deduction taken on the property) and whether itis 5-year or 7-year property, use the half-year convention table,shown next, to figure your depreciation. Percentages Recovery Year 5-Year Property 7-Year Property 1 20% 14.29% 2 32% 24.49% 3 19.2% 17.49% 4 11.52% 12.49% 5 11.52% 8.93% 6 5.76% 8.92% 7 8.93% 8 4.46% See Publication 946 for a discussion of the mid-quarter conventionand for complete MACRS percentage tables. Example.During the year, Donald Kent bought a desk and three chairs for usein his office. His total bill for the furniture was $1,975. Histaxable business income for the year was $3,000 without any deductionfor the office furniture. Donald can elect to do one of the following. Take a section 179 deduction for the full cost of the officefurniture. Take part of the cost of the furniture as a section 179deduction and depreciate the balance. Depreciate the full cost of the office furniture. The furniture is 7-year property. If Donald does not take a section179 deduction, he multiplies $1,975, the cost of the furniture, by14.29% (.1429) to get his depreciation deduction of $282.23. Personal Property Converted to Business Use If you use property in your home office that was used previouslyfor personal purposes, you cannot take a section 179 deduction for theproperty. You can depreciate it, however. The method of depreciationyou use depends on when you first used the property for personalpurposes. If you began using the property for personal purposes before 1981and change it to business use in 1999, depreciate the property by thestraight line or declining balance method based on salvage value anduseful life. If you began using the property for personal purposes after 1980and before 1987 and change it to business use in 1999, you generallydepreciate the property under the accelerated cost recovery system(ACRS). However, if the depreciation under ACRS is greater in thefirst year than the depreciation under MACRS, you must depreciate itunder MACRS.For information on ACRS, see Publication 534,discount hotels in NewcastleDepreciating Property Placed in Service Before 1987. If you began using the property for personal purposes after 1986and change it to business use in 1999, depreciate the property underMACRS. The basis for depreciation of property changed from personal tobusiness use is the lesser of the following. The adjusted basis of the property on the date ofchange. The fair market value of the property on the date ofchange.