It is well-established that your business can deduct the full cost of computer equipment it keeps on the business premises, as well as related fees. But can you deduct any part or all of the costs for desktops, laptops or tablets you use at home? The answer is not so simple.
Starting point: Computers and related equipment are generally treated as “listed property” for depreciation purposes. Therefore, deductions are generally held to strict record-keeping requirements and other special rules, depending on your business use. To use an example, if you use a home computer for business purposes for 80% of its overall use, your deduction is limited to 80% of the costs.
Under Section 179 of the tax code, you are entitled to currently deduct up to $139,000 of qualified assets placed in service in 2012 (see page 2). Therefore, if you’re self-employed and your home computer system—including a printer and scanner—costs $2,000, your deduction is $1,600, based on 80% business use. In addition, you can deduct 80% of the related services. But you cannot claim a Section 179 deduction for listed property if your business use is not more than 50%. Similarly, you cannot use an accelerated method of regular depreciation.
Alternatively, you may deduct the cost under the regular depreciation deduction rules. The write-off period for computers is five years. You must use the straight-line method for listed property instead of accelerated depreciation if your business use does not exceed 50% of your overall use of the computer.
Special exception: If your computer is located at your regular business establishment, it is not treated as listed property. Usually, a home computer will qualify for this exception if you are self-employed and maintain a home office as your main business location. But a laptop or tablet that you carry around to other business locations is still considered listed property.
The rules become even trickier when computers are used in a home office. Technically, the home office must be used “regularly and exclusively” for business purposes. So any personal use of a desktop computer may taint your home office deductions. It may be preferable to use another computer at home for surfing the Internet or other personal pursuits.
Another special rule applies to taxpayers who are employees of a company. Unlike a self-employed individual, you may claim business deductions for a home computer only if it is used for the “convenience” of the employer and is required as a condition of employment. Thus, you generally cannot deduct your computer costs if you are an employee who burns the midnight oil on a home computer.
Finally, if you use your home computer for investment and tax-planning purposes, you may be able to deduct the cost as a miscellaneous expense on your tax return. Similar to the requirements for business use of computers, you must keep records of investment and tax-related use. Your deduction is limited to the percentage of the qualified use, and the Section 179 deduction is not available for purchases.
Note: The annual deduction for miscellaneous expenses is limited to the excess over 2% of your adjusted gross income (AGI). If you have cleared the 2%-of-AGI threshold in 2012, you might accelerate expenses into this year.