How to Depreciate Furniture

If you run a small business, you know that purchasing office furniture can be expensive, and that’s why the IRS allows you to write off the expense. Just as a vehicle loses value the minute it rolls off the lot, the value of used furniture diminishes over time due to factors such as wear and tear from everyday use. Other factors like local demand and brand name make a big difference in the resale value of the piece.

The IRS requires business owners who take the write-off to do the math and figure how much the value of the office furniture depreciates over time. The taxes are then calculated over the life of the furniture based on that formula.

How to Calculate Furniture Depreciation

  1. Gather your receipts and figure the total cost of the furniture. You can depreciate the cost of the furniture but not the sales tax that you paid. As an example, assume you spent a total of $50,000 before sales tax.
  2. Determine how long you expect the furniture to last. There is no definitive way to be sure how long furniture will last, as an office chair used for 40 hours a week may endure much more abuse than a desk or bookcase, and your personal tolerance for the way office furniture looks or operates over time may vary. For this example, use 10 years as an acceptable life span.
  3. Calculate the furniture depreciation using your own calculations or use an online used-furniture calculator. Depreciation equals retail cost divided by life expectancy depreciation, which in this case is $50,000 divided by 10 years. Based on the calculations, depreciation is $5,000 per year for 10 years. You can write off the $5,000 per year for 10 years.

Save Time With a Used-Furniture Calculator

Another option for pricing used furniture is to use an online used-furniture calculator. These easy-to-use furniture valuation guides allow you to enter the original price of the furniture as well as its age, brand name, location, condition and category. The calculators do the math for you and give an estimate of how much the furniture is worth on the market after a certain period of time.

New IRS Laws for Furniture Depreciation

Depending on the value of the used furniture, you may no longer need to break out the abacus to figure out depreciation. In December 2017, the IRS made sweeping changes to the laws governing tax incentives for small businesses. Specifically, Section 179, which covers real property, has been changed by the U.S. government to encourage businesses to buy equipment and invest in themselves.

The old rules allowed the business to write off the cost over a period of years and only allowed the write-off on the depreciation, which in the example is $10,000 a year. That can be a large chunk of change for a small business all at once, so the minimal write-off may have been enough for them to put off the purchase.

The new rules, which apply to business furniture purchased and put into service after Sept. 27, 2017, allow businesses to write off the entire amount of the furniture for the year purchased and includes depreciable business assets expected to last 20 years or less. More good news is that in the past, there was a maximum deduction of $500,000 for office equipment and furniture, and the new law doubles the maximum deduction to $1 million.

Section 179 allows for deductions up to $1 million per year for office furniture and equipment. The total allowance for equipment purchased is $2,500,00, and the entire deduction is phased out after expenses of more than $3,500,00. For more information, consult IRS Form 4562.