Listed Property - What It Is

Listed property consists of items the IRS considers having the potential for personal use. Computers, vehicles, and cell phones all fall into this category. For these items, you must keep detailed records of personal versus business use.

Just keep a notebook next to the computer, for instance. Whenever the item is in use, jot down when and for how long, and whether it was business or personal use. This may sound tedious, but during an audit, you will have to produce these records.

It is the very same concept as keeping mileage journals for your vehicle. In fact, because automobiles fall under listed property, it is why you have to keep mileage records.

If in doubt whether something is considered listed property, keep records. If you question whether or not the IRS thinks you could be abusing the tax deduction, they probably do, too. More explanation of which items are considered listed property is given in IRS Publication 946.

Note: In order to use an accelerated method of depreciation for listed property, you must use the item more than 50% for business purposes. If you use it 50% or less in the business, listed property must be depreciated using the Alternative Depreciation System (ADS).

This and other information may be found in the book listed below.
Permission to use or excerpt with proper attribution.
Simon Elisha, author, Taxes for Online Sellers—
A How-To Guide for Individuals on Federal Tax for Internet Sales
ISBN: 978-0-9796328-0-8
http://www.taxesforonlinesellers.com

Basis, Business Basis, Tax (Adjusted) Basis - Defined

Basis: Generally the cost of your item, increased by sales tax and improvements.

Business Basis: Multiply the basis of your item by the percentage you use the item for business purposes. The result is your business basis of the item.

Tax Basis (Adjusted Basis): Your basis, reduced by any Section 179 or other depreciation you have ever taken on the item for tax purposes.

Examples:

Joel has a computer. To figure his basis, he needs to know what he paid for it (plus sales tax). He paid $1000. $1000 is his basis.
(Improvement) He adds a larger hard drive to the computer for a cost of $100. His basis is now $1100 (1000 + 100).

Joel only uses the computer , with the larger hard drive, 70% for business purposes. His basis is $1100. But, his business basis is $770 (1100 - 70%).

When he is ready to sell the computer, he will need to know his tax, or adjusted, basis. Over the years, he has depreciated the computer using straight-line depreciation. The amounts he has taken thus far, add up to $440. He subtracts that from his $1100 basis. His tax basis becomes $660.

His basis is $1100. His business basis is $770. His tax basis is currently $660.

If Joel had never taken any deductions on his computer, his tax basis would be his basis, reduced by the amount he could have depreciated it using straight-line depreciation tables.

This and other information may be found in the book listed below.
Permission to use or excerpt with proper attribution.
Simon Elisha, author, Taxes for Online Sellers—

A How-To Guide for Individuals on Federal Tax for Internet Sales

ISBN: 978-0-9796328-0-8

http://www.taxesforonlinesellers.com