How to Determine the Depreciation of a Fence
Fences are practical additions to property that help some businesses to thrive; however, fences lose value and function as they age. The lost value reflects the normal wear and tear that fences experience. Depreciation is a method to account for the fence's cost and value in a systematic manner.
Numerous businesses need fences, whether it is a day care center keeping its young charges from charging off into danger or a garden center protecting its prized petunias from the hands of exuberant passersby.
Tip
The IRS has introduced the term "cost recovery" to refer to depreciation. The current scheme, as of February 2011, is the Modified Accelerated Cost Recovery System, or MACRS.
Warning
Do not confuse book depreciation, which you determine for your own business accounting purposes, with IRS depreciation, which you determine for tax reporting purposes. Larger businesses use book depreciation to gain a more accurate measure of the usefulness of their assets and to calculate replacement times with greater precision. Smaller businesses tend to use only IRS guidelines for all of their accounting purposes.
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Choose 15 years as the useful life of the fence as dictated by the Internal Revenue Service as the useful life for improvements added to the land under the General Depreciation System. Make a separate record if your assessment of your fence's lifespan differs significantly, and keep the information for nontax purposes.
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Identify the date that you first put the fence into service. Choose either the midmonth or midquarter convention to account for the first and last years the fence is in service.
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Determine the cost of the fence. Include the price you paid for the fence, as well as items such as the cost to survey the land to place the fence and installation fees. Use the fair market value of the fence instead of the cost if you are converting it from personal to business use.
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Calculate the expected sale value of the fence at the end of its useful life, the salvage value.
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Subtract the salvage value from the total cost of the fence. Divide that figure by the useful life of the fence to determine the amount of annual depreciation for your fence. Adjust your values for the first and last years in accordance with the midmonth or midquarter convention.
The Drip Cap
- Fences are practical additions to property that help some businesses to thrive; however, fences lose value and function as they age.
- Make a separate record if your assessment of your fence's lifespan differs significantly, and keep the information for nontax purposes.
- Identify the date that you first put the fence into service.
References
Resources
Writer Bio
Lee Roberts has written professionally in different capacities throughout her career. She has written for not-for-profit and commercial entities since she received her Bachelor of Arts in sociology from the University of Michigan in 1986. She is currently writing an extensive work of fiction.
Photo Credits
- Jupiterimages/Photos.com/Getty Images
- Jupiterimages/Photos.com/Getty Images
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