How do I Choose the Best Depreciation Guide?

Choosing the best depreciation guide will depend on the resident country of the taxpayer and the type of assets that are being depreciated. Each country has a taxing authority, and these agencies have published guides that address depreciation and would therefore be the most authoritative source. These may be obtained either through the Internet or by calling or writing the individual governmental agencies.

There are several available private depreciation guides published yearly, such as the U.S. Master Depreciation Guide, available online or through major bookstores. Additional depreciation guides are published online or in book format and may be helpful as supplemental information. The best depreciation guide, however, will be the one produced by governmental agencies.

For example, the Internal Revenue Service (IRS) in the United States, Her Majesty’s Revenue and Customs in the United Kingdom, and the Australian Taxation Office in Australia are all taxing authorities. A resident of any country that offers depreciation as a tax deduction may request a depreciation guide from the taxing authority of that country. In many cases, a depreciation guide may be downloaded directly from the website of the taxing authority. Access to tax authority websites can be found online by searching for the specific country and using “taxing authority” or “depreciation” in the search field. Each of the websites will be in the native language of the specified country.

The Australian Taxation Office provides a publication called Guide to Depreciating Assets, and the IRS has several publications that give depreciation information. These include Publication 946, How to Depreciate Property; Publication 534, Depreciating Property Placed in Service Before 1987; and Publication 527, Residential Rental Property. These guides address such topics as what assets may be depreciated, the life of assets for allowable depreciation, and the allowable depreciation methods.

A depreciation guide will outline the system used. In the United States, most assets fall under the Modified Accelerated Cost Recovery System (MACRS). Under this system, assets used in business or for an income-producing activity are classified into different useful life groups. For example, most office equipment and vehicles have a five-year recovery period, whereas office furniture has a recovery period of seven years, landscaping and improvements have 15 years, and residential rental property has 27.5 years.

Several types of depreciation methods are listed in the depreciation guide. These include straight-line, declining-balance, and activity-based depreciation. Depreciation over the life of the asset is based on the cost or investment value of the asset, so the total depreciation allowed will be the same in any method, although the timing will be different. In the straight-line method, there is an equal depreciation assessment each year, whereas in the declining-balance method more depreciation is deducted in the first years and less in the latter years. Activity-based method determines depreciation based on how much the asset is used, such as mileage for a vehicle or the amount of product generated by a machine.