If you purchased a bicycle for business purposes, you have a capital asset as well as a tax break available from the IRS on the cost. Although you can elect to depreciate the expense of the two-wheeler over several years, you can also take the full cost in a single year under the Section 179 rules. There are conditions to these rules, of course, as well as an extra tax form to complete.
Basic Depreciation Rules
Depreciation means deducting the cost of an asset from your business income. With traditional depreciation methods, you calculate the deduction as a portion of the cost basis over the asset's serviceable life, as determined by IRS schedules. In each year you claim depreciation, the deduction lowers your tax bill. When you buy a bicycle to use in a business, you have a depreciable asset, but you can only depreciate the percentage of cost equal to the percentage of business use. If you use a bike half the time for business and half the time for trail riding, for example, then you can only depreciate half the cost.
Section 179 Rules
Under certain conditions, IRS regulations under Section 179 allow you to depreciate the full cost in the year you place your work bicycle into service. You must acquire the bicycle for business use, meaning you can't use a recreational bike for two years, then move it to your business and take the deduction. In addition, to take the Section 179 deduction you must use the bicycle for at least 50 percent of the time in your business. If you elect to deduct only a portion of the cost under Section 179, you can then depreciate the balance. The IRS limits all Section 179 deductions to $500,000 per year.
In Publication 946, the IRS presents a table setting out the depreciation period for various classes of assets. Bicycles aren't specified on this table, so they would come under "Personal Property with No Class Life," and are assigned a depreciation period of seven years. If you don't elect a Section 179 deduction, this means you can depreciate the cost of a bicycle over a period of seven years. Accountants have devised four different methods of calculating depreciation expense, with the easiest being the "straight-line" method that takes an equal amount in each year. For a bicycle, this means that one-seventh of the cost basis (price plus sales tax) is deducted each year over seven years. If you're going to use depreciation, your tax deductions will be smaller but will last longer. For either Section 179 deductions or depreciation, you must file Form 4562: Depreciation and Amortization.