Depreciation on Software???

IRS Publication 946 explains how you can use depreciation to recover the cost of business or income-producing property. One of the key elements in determining the correct annual depreciation amount is selecting the appropriate property class. There are many property classes listed in Appendix B of this publication but we have also created additional classes for things that are not covered. Computer Software is one of the asset classes.

Computer software is defined broadly to include any program designed to cause a computer to perform a desired function. However, a database or similar item is not considered computer software unless it is in the public domain and is incidental to the operation of otherwise qualifying computer software.

Depreciable software acquired after 8/10/1993 that is not an amortizable section 197 intangible asset is depreciated using straight-line over a three year period beginning on the first day of the month. This software can also be expensed under section 179.

Software is considered a section 197 intangible only if acquired in a transaction involving the acquisition of assets constituting a trade or business. Off-the-shelf software is not a section 197 intangible asset. Below are the associated class lives and recovery periods:

This gives you the basic information that you need for a depreciation calculation but you still need to use a formula to get your answers. A straight-line calculation is used for this asset class and the full month convention will take a full month of depreciation in the first period.

Look at sample spreadsheet below to see all the work that is involved in just one calculation. The highlighted formula shows the first year calculation as one twelfth of the annual amount meaning the asset started depreciating in the last period of your year. As you can see the remaining amount of the first year is then taken in the last or stub year.

Let the Depre123 depreciation calculator take out the guess work. Just enter 3 simple values (Cost, Date, Class) and get all the answers. The calculator is a great way to view the depreciation results for a handful of assets. If you manage hundreds or thousands of fixed asset records then a trial of the full Depre123 application can demonstrate how to simplify the entire process of fixed asset management.

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More information about Bassets eDepreciation software can be found at Bassets.net or depre123.com. At Bassets register for our live webinar, download a free evaluation copy and get a personalized pricing estimate. At depre123 try out our Free Depreciation Calculator and check out our cloud based fixed assets application.