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So What is an Asset Anyway?

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Education & Training with ToniHogan.com

In my last post on this topic I discussed depreciation as an expense. We defined depreciation as the measure of the loss of value of business asset over its useful life. So, now we want to find out exactly what an asset is anyway.

As real estate professionals, I will assume you have a basic grasp of assets...or those things you own. With regard to our real estate, or any other business, assets are those things we use in the operation of our business. For purposes of this post I am referring to tangible assets (things).

Your list of assets may include:

  • Office furniture
  • Computers
  • Printers
  • Copy machines
  • Fax machines
  • Digital cameras
  • Cell phones/PDAs
  • Automobiles
  • Buildings you own

The assets used in your business all have an estimated useful life. Once the useful life is determined you would spread the cost of the asset of its useful life and deduct that amount as depreciation expense on your tax return. Alternatively, you may elect to deduct the full cost of the asset in the year you purchased by using the Section 179 deduction. Your tax professional should be able to assist you with determining which option is best for your particular situation.

To assist your tax professional with calculating your depreciation allowance, make a list of all of the assets used in your business. If you "contributed" as asset that you owned prior to starting your real estate business you can use its value at the time it was placed in service. Here is a sample schedule to help you get started.

Description

Purchase Date

Placed in Service Date

Cost

FMV Today

HP Color Laser Printer

2/25/2006

2/25/2006

$597

 

PB Imagistics MFP

 

9/1/2006

 

$275

 

 

 

 

 

*NOTE: This list of assets is by no means exhaustive. It does include some of the most common assets used by small business owners.

 

Always consult a tax professional if you are not sure about the tax treatment of certain items.

Posted by

 

Toni Hogan®
Agent Success Coach

ToniHogan.com
AgentSuccessMBA.com

Comments(6)

Kathy McGraw
CELLing Realty - White Water, CA
Riverside County CA Real Estate
Hi Toni E.- Taking what you know best and teaching how to do it is great.  This was pretty easy to understand......so, you will be busy again this year doing taxes?
Jan 14, 2008 11:45 AM
The TaxMan
Self Employed - Oakland, CA

One thing to keep in mind is that the IRS has defined the class lives of most assets, like furniture, computers, automobiles, residential property, etc...

Your accountant should be able to figure out all that stuff, but if you are doing your own taxes, you should be sure to follow the guidelines set forth by the IRS.

For example, you can't take the 179 on everything. Also, be careful not to mix expenses from your business (as a real estate agent) with expenses from your real estate activity (as a personal investor). 

Jan 14, 2008 12:15 PM
Toni Hogan
ToniHogan.com - Houston, TX

Hey MB. You must be all caught up. :-) I am not sure if I will be really busy. I am sending letters to my current clients and only 250 postcards to child care providers licensed less than two years but before the last quarter of 2007. I am sharing an office with a couple (not sure if they're a real couple) of people who specialize in individual tax preparation. They have about 350 clients and promised to promote my "ental business" to their clients on a "use your refund towards your deposit" type deal. I can't give them a referral fee but I wonder if I could give them free rent on the office space. <grin> Just kidding law hounds!

Hey, TaxMan! Thanks for stopping by and for the info. If anyone is planning to do their own taxes this year I would suggest getting a good tax software program. I like TaxAct and have used it since 1999. Some people swear by TurboTax. And, there's also TaxCut.

Jan 14, 2008 12:39 PM
The TaxMan
Self Employed - Oakland, CA

I would say that TurboTax is pretty comprehensive, and for the most part, more complete than the others, but it's still pretty difficult in some senses, especially for the most common types of simple real estate/stock transactions.

For example, reporting a 1031 exchange using Intuit's program is anything but intuitive, and it doesn't do a very good job of helping you capture all applicable amounts (like from a closing statement).

But there are other supplemental programs you can use, like Wolters Kluwer's gainskeeper.com for stocks, and Niman's website for real estate transactions, which can help you get the right numbers to enter into whatever software program you use.

Then again, I am speaking from the perspective of someone who is inexperienced and trying to do their own taxes. I use Drake, but of course, I know what I'm doing.

Jan 14, 2008 01:54 PM
Toni Hogan
ToniHogan.com - Houston, TX

TaxMan, 1031 exchanges and real estate (investment) transactions are beyond the scope of this series of posts. I would suggest that someone wanting more in depth tax information visit your group, Real Estate and Taxes, and/or seek professional help.

My objective is to provide useful information for the average real estate professional from a small business owner's perspective.

Thanks again! :-)

Jan 14, 2008 02:03 PM
The TaxMan
Self Employed - Oakland, CA

Amen to that, it's always worth the time and money to seek professional advise.

Overall, I would say it's fairly simple to complete your own tax return using most types of common tax software, especially if you are just a regular employee. Once it's starts getting complicated, it's worth it to pay for a professional. 

However, it can be hard for some people (like an employee who just sold his first property) to decide where the thin gray line exists.


Jan 14, 2008 03:14 PM