You generally cannot deduct, in one year, the entire cost of property you purchased, either for use in your trade or business or to produce income, if the property has a useful life substantially beyond the tax year. Instead, you can depreciate it. That is, you can spread the cost over a number of years, and deduct a part of the cost each year.

The kinds of property that you can depreciate include machinery, equipment, buildings, vehicles, and furniture. You cannot claim depreciation on property held for personal purposes. If you use property, such as a car, for both business or investment and personal purposes, only the business or investment use portion may be depreciated. You may depreciate property that meets all five of the following tests:

• It must be property you own,
• It must be used in a business or other income–producing activity,
• It must have a determinable useful life,
• It must be expected to last more than one year; and
• It must not be excepted property. Excepted property (as described in Publication 946, How to Depreciate Property) includes certain intangible property and term interests and property placed in service and disposed of in the same year.

Generally, if you are depreciating property you placed in service before 1987, you must use the Accelerated Cost Recovery System (ACRS) or the same method you used in the past. For property placed in service after 1986, you generally must use the Modified Accelerated Cost Recovery System (MACRS).

If you meet eligibility requirements, you can choose to expense rather than depreciate part or all of the cost of the property. The maximum amount that may be expensed for 2003 is generally $100,000. This deduction is known as the "Section 179 deduction."

If you depreciate part or all of the cost of the property, you may be able to claim an additional 30% special depreciation allowance for qualified property placed in service during the tax year (or an additional 50% special depreciation allowance for 50–percent bonus depreciation property placed in service after May 5, 2003).

For more information, refer to Publication 946, How to Depreciate Property, or Publication 534 (PDF), Depreciating Property Placed in Service Before 1987. You can also find information on depreciation in Publication 527, Residential Rental Property (Including Rental of Vacation Homes), Publication 463, Travel, Entertainment, Gift, and Car Expenses, Publication 587, Business Use of Your Home, and Publication 225, Farmer's Tax Guide.