Can You Defer Depreciation?

Depreciation is the loss in value an asset sustains over its useful life. The useful life of an asset is defined by the Internal Revenue Service for tax purposes. It can vary from a few years to a few decades, depending on the type of asset. There are times when taking a depreciation expense does not help your tax liability and it would be beneficial to take depreciation in a future year. However, depreciation can not be deferred.

Depreciation is the devaluation of an asset over time. Depreciation is taken as an expense to a business over the useful life of the asset. The useful life is defined by the Internal Revenue Service and can range from several years to several decades. Depreciation expenses are taken on IRS Form 4562: Depreciation and Amortization.

To defer something means to put it off for a future time. In the case of deferred depreciation, a taxpayer wants to put depreciation expenses off for the current year and take the expense in a future year. A credit card or car loan will commonly allow purchasers to defer payments on a loan until a future date. This means the payments are not made for a set amount of time.

There is no such thing as deferred depreciation. Depreciation as an expense must be taken in the year that it occurs. Depreciation occurs each year, as defined by the IRS guidelines, whether you choose to claim it as an expense or not. Because it is constantly occurring each year, it is best to claim depreciation each year, whether it helps you out or not because you can not take it in a year when it does not occur.

While depreciation can not be deferred, oftentimes the business loss that can result from the depreciation expense can be carried back or forward on your taxes. This is known as the NOL, or net operating loss. Depreciation can result in a NOL that can be carried forward, so the depreciation expense is being deferred in a sense. The IRS publishes publication 536: Net Operating Losses for Individuals, Trusts, and Estates in order to define how you are able to deal with NOLs. Additionally, depreciation methods can be adjusted in order to take a lower amount of depreciation in the current year. There are several methods of depreciation and switching the method of depreciation may help slow depreciation in the current year.