The Internal Revenue Service defines rules governing the deductibility of expenses. When deciding whether fencing your yard is tax deductible, taxpayers must evaluate how the fence is used. If your yard requires a fence for a legitimate business purpose, claiming a tax deduction for the fence is straightforward. But keep in mind that the entire cost of the fence and related labor cannot be deducted in the year in which the fence is installed. Instead, it must be deducted over several tax years.
Business vs. Personal Expenses
The IRS allows individual taxpayers to deduct personal expenses through the itemization process, which includes expenses for medical care, property taxes, mortgage interest and charitable contributions. Fencing your yard does not qualify as a deduction for individuals. However, the IRS allows you to deduct expenses related to running a business if the expenses are necessary and ordinary to the running of the business. For example, the cost of fencing your yard might be ordinary and necessary if you run a kennel, day care or scrap-metal yard for profit. Fencing the yard of a rental property might also be necessary and ordinary.
Expenses with short lives, such as office supplies, can be deducted in the year in which they are incurred; other expenses must be capitalized and depreciated over the asset’s useful life. In addition, the taxpayer only may capitalize the portion of the fence used for business purposes. For example, if you run a day care from your home during the day, and your children play in the yard at night, your fence is used partly for business and partly for personal purposes. You must determine how much of the time the fence is used for business purposes and capitalize that portion of the cost of the fence.
You can capitalize the cost of materials purchased to construct the fence and the cost of any labor contracted to build the fence. You cannot deduct the cost of materials you do not purchase, such as lumber you reuse from an old fence, or the value of labor you do not pay. For example, you cannot deduct the cost of your own time involved in fencing your yard.
The IRS says that fences usually are depreciated under the General Depreciation System and have 15-year useful lives.
Individuals who own businesses report their income on Schedule C – Profit or Loss from Business. The cost of fencing material and the related labor are capitalized on Form 4562 – Depreciation and Amortization. The total depreciation figure from Part IV – Summary, Line 22 – Total is carried to Schedule C, Part II – Expenses, Line 13 – Depreciation. The net profit or loss from Schedule C, Part II – Expenses, Line 31 – Net Profit or Loss is reflected on Form 1040, Line 12 – Business Income or Loss.