For purchased property, the taxpayer's basis is ordinarily what the taxpayer paid for the property. For property received by gift, the donor's basis becomes the basis of the person to whom the property is gifted. For inherited property, the heir's income tax basis is the value of the property at the time of the decedent's death as determined for federal estate tax purposes. A good way to think of depreciation is that the tax law is structured to tax income less the cost of producing the income. Among these costs are the operational costs of both tangible and intangible assets that assist in producing income.
All property fits into one of the eight depreciation classes.
Most farm property is seven-year property. Miscellaneous In general, any expense associated with the business that has a useful life of less than 1 year is deductible against gross income. Losses are deductible if they are attributable to a business. Please refer to how the IRS defines a business. Common deductible losses include hobby losses, operating losses, casualty and theft losses and passive losses.