Many people wonder how to write off a computer on their income tax. Suppose you own a business or attend university. In that case, you may be able to deduct the cost of your laptop on your return. It's crucial to ensure you qualify for the write-off before submitting your tax form.
Buying a Computer as a Business Expense
If you buy a new computer to use in your business, you can write off this expense on your taxes. Under Internal Revenue Code section 179, you deduct all or a portion of the purchase price for the year you bought the computer. Keep in mind that you can only deduct the amount representing the business use of the computer. You must use the computer at least 50 percent of the time to qualify for the Section 179 deduction.
Read More: Self-Employed Tax Deductions, Benefits & More
Laptop for Personal Use
If you used the computer half the time for business and half the time for personal use, you can deduct half of the cost on your income tax return. So, if you used the computer 80 percent of the time for business and 20 percent for personal use, you could claim 80 percent of the purchase price on your return.
Laptop Depreciation Schedule IRS
According to the Internal Revenue Service (IRS), a special depreciation allowance of 100 percent is in place for qualified property. You also have the option of depreciating the computer over five years.
Computer Software and the Section 179 Deduction
Computer software you buy "off the shelf" is tax-deductible as long as it is available to the public. The IRS defines software as "any program designed to cause a computer to perform a desired function."
A database doesn't qualify as computer software unless it is in the public domain and needed to operate software that qualifies for the Section 179 deduction.
Read More: Ordinary & Necessary Expenses Definition
Laptop Tax Deduction for Students
Suppose you need a computer to attend college. In that case, you may be eligible to claim the American opportunity tax credit (AOTC) for the amount paid for the laptop.
The maximum amount of the credit is $2,500 for each eligible student. If this tax credit brings the amount of tax owed to zero, you will receive a refund of 40 percent of the remaining amount up to a maximum of $1,000.
Here's an example: You buy a laptop computer for $1,500 and claim the AOTC. There is $1,000 remaining credit available. If this credit brings the tax owing to $0, you can get 40 percent of $1,000 refunded to you.
$1,000 x .40 = $400, so your refund would be $400.
Eligibility for AOTC
Eligibility requirements for the AOTC are as follows:
- A student must be enrolled in a degree program or pursuing a recognized credential.
- They must be taking at least a half course load for a minimum of one quarter, semester or trimester "beginning in the tax year."
- The student must not have completed the first four years of higher education "at the beginning of the tax year."
- The student can't claim the AOTC for more than four years.
- A person with a felony drug conviction at the end of the tax year is ineligible for the AOTC.
A taxpayer must also have a Tuition Statement (Form 1098-T). The school will send the document by January 31.
Claim the AOTC
To claim the AOTC, complete Form 8863. The form should be attached to your return.
If you have any questions about deducting a computer from your taxes, consult an income tax professional for assistance.
Read More: 1098-T: Understanding the 1098-T IRS Tax Forms for Students