That expensive computer you just bought could be tax deductible. It all depends on how you use it.
Here’s how to deduct computers on your taxes.
Can students deduct the cost of a computer?
You get no deduction for a computer you use to help you with your school work. Sorry. The same goes for books and other school supplies. Just one more reason being a student sucks.
Can an employee deduct a computer?
No, tax reform changed the rules around unreimbursed employee expenses.
You’ll be better if you can get your employer to reimburse you for the cost of a computer. The employer will then be able to deduct the cost as a business expense. You don’t have to include the reimbursement as employee income because you’re using it for work.
Can I deduct a computer for my business?
Yes, the self-employed can deduct the cost of a business computer. The same goes for any other business equipment you buy.
How to deduct the cost of a computer
There are several ways to deduct the cost of a computer. Usually, you can deduct the entire depreciable cost in a single year instead of depreciating it over five years.
Can you deduct the entire cost of a computer?
Yes, you can use de minimis safe harbor to deduct the cost of a computer under $2,500. If it’s more, you may have to use the Section 179 deduction.
When do you have to depreciate the cost of a computer?
If you can’t use the de minimis safe harbor to deduct the cost of a computer in a single year, you’ll likely be able to deduct the deduct the entire cost under a provision of the tax law called Section 179.
Under Section 179, you can deduct in a single year the cost of tangible personal property (new or used) that you buy for your business. This includes computers, business equipment, machinery and office furniture. To take advantage of Section 179, you must use the computer in your business more than 50 percent of the time.
If you use the computer for both business and personal purposes (such as playing computer games), your deduction is reduced by the percentage of your personal use.
How to depreciate a computer
If you can’t deduct the full cost of a computer in a single year with the de minimis safe harbor or Section 179, you’ll have to deduct the cost a little at a time over several years. This process is called depreciation. Computers are depreciated over five years.
Fortunately, something called bonus depreciation is available to speed up your deduction. During 2017, you can deduct 50 percent of the cost of a computer the first year using bonus depreciation. You then depreciate the remaining cost over five years.
There is no requirement that you use the computer for at least 51 percent of the time for business to depreciate it. You can depreciate business property even if you use it only 1 percent for business. Your depreciation deduction is reduced by the amount of your personal use of the property.
For example, if you use your computer 40 percent of the time for business and 60 percent of the time for personal use, you can only depreciate 40 percent of the cost. If your computer cost $3,000 you could only depreciate $1,200.
Converting an old computer to business use
If you convert an old computer for use in your business, or to use for your employment, you can’t use Section 179 or the de minimis safe harbor to deduct it. You must depreciate it over five years, and you can’t use bonus depreciation.
Your total depreciation deduction is limited to the lesser of (1) the original cost of the computer, or (2) its fair market value on the date you start to use it for business. Since computers usually decline in value rapidly, you’ll often have to depreciate the fair market value.
MileIQ’s blog does not constitute professional tax advice. You should contact your own tax professional to discuss your situation.