Can You Depreciate Beds?
Beds are considered a capital asset with a five-year tax life. A capital asset is defined as the type of asset that can’t be easily sold or liquidated for profit. A tax life is the number of years the IRS has assigned to certain capital-asset classes. For example, beds have a five-year tax life, and equipment has a seven-year tax life. When you purchase a bed for business use, you must spread the cost out over a five-year period. This is called depreciation expense. The IRS provides specific guidelines for deducting depreciation expense on capital assets such as beds.
When you purchase a bed, you must classify it as a capital asset, which means the cost must be shown in the balance sheet and not the profit-and-loss statement. The balance sheet is one of the pages of a company’s financial statements and shows capital assets such as furniture, equipment and real estate. It also shows liabilities such as loans payable or accounts payable. Here is a typical accounting entry for the purchase of a bed: If the bed cost $1,000, you would credit (reduce) cash and debit (increase) furniture for $1,000. Then, you’ll need to make an accounting entry to take depreciation expense, which will reduce the value of the asset on the books, and at the same time, give the business a deduction for depreciation expense on the profit-and-loss statement.
In order for a business to depreciate a bed, the bed must serve some business use. Common examples include a bed used in a furnished rental property or hotel room. In both cases, a bed is a necessary capital expenditure. The IRS guidelines state that to be classified as a business asset, the asset must be used primarily in a business capacity. For example, a production facility might have a small apartment on-site to accommodate employees who need to stay late or work a lot of overtime. A bed purchased by a business, but kept at the owner’s home, might not meet the business-use test.
The most common method used for depreciating furniture is the straight-line method. This means taking the same amount of depreciation expense each year based on the tax life of the asset. Since furniture is considered a five-year asset by the IRS, you would deduct 20 percent of the total cost each year until the depreciation expense is used up. For example, if a bed cost $2,000, you would take an annual depreciation deduction of 20 percent, or $400. There are also other methods of depreciation that allow you to take a larger deduction during the first few years. One example is the 200-percent declining-balance method. With this method, you take the straight-line amount and double it each year until the asset is fully depreciated.
Consult with a tax professional before deciding on a depreciation method for your bed. Some business owners prefer to spread their deduction for capital expenses evenly over time, and others prefer to maximize their deductions in the first few years. A deduction for depreciation must be taken on IRS form 4562. The total depreciation expense shown on this form is then transferred to your schedule C (if you’re an individual), which is the business profit-and-loss statement for your business.