Deducting Your Computer
So you have this new computer. Can you deduct any of the cost on your tax return? The deductibility of the cost of buying and operating a home computer, including related equipment such as printers, drives, scanners, modems, etc., depends on how you use the computer.
Strictly personal use. As you might guess, you get no tax deduction where you use the computer for entertainment, education, avocation, hobbies, and other personal purposes.
Strictly for your employer's work. You can deduct the operating expenses plus depreciation for a home computer that you pay for if the computer:
a is required as a condition of your employment, and
b is used for the convenience of your employer.
However, a computer at home, even if used exclusively for the employer's work, is subject to the so-called 'listed property' deduction-limitation rules (unless you qualify under the 'Office-at-home' rule, explained below). Briefly this means that:
1 You can take accelerated depreciation over 6 tax years, plus (in the first year you place the computer in service) an expense deduction under a special Code election (plus related operating expenses) for the computer's cost, where the computer is predominately used (more than 50%) for your employer's work -- 50% or less work-related use downgrades your depreciation to straight-line and eliminates any expense election.
2 Your allowable deductions in (1), above, must be reduced by 2% of your adjusted gross income.
Investment or income-producing use. You can deduct operating expenses plus depreciation if you use your computer:
a to produce or collect income (for example, to keep track of your investments) even though the income-producing activity doesn't qualify as a trade or business;
b to manage conserve, or maintain property held for producing income; or
c to determine, contest, pay, or claim a refund of any tax.
The same deduction rules that apply to an employee (above) apply here except that the special expense deduction under (1), above, isn't allowed.
Home office business use. Not surprisingly, if you use the computer in an office at your home that qualifies as your 'regular business establishment' you get the maximum deduction. You get the same deduction as the employee, above, but the 2% reduction rule in item (2), above doesn't apply, and the 'listed property' limitation rules don't apply.
Of course, to be assured of any deduction you must provide acceptable proof of use, etc.
If you have any questions or would like additional information drop us a line.