March 18, 2021 - by Mark Wilsdorf
The IRS requires that you to include acquisition costs in a depreciable asset's basis (the dollar amount you are allowed to depreciate for income tax purposes). According to IRS Publication 225, The Farmer's Tax Guide, acquisition costs include things like sales tax, freight charges, and installation and testing fees—any cost involved in getting the item on site and running/working.
Including acquisition costs in an asset's depreciable basis is easy if they were included in the price you paid for a new piece of machinery, or a building, or a group of breeding livestock. If the purchase price included sales tax, delivery, setup, configuration charges, etc., and you wrote a check for the new asset, its depreciable basis will be equal to the check amount.
But what if you paid for some of the acquisition costs separately? Maybe you paid a trucking company to deliver a tractor you purchased, or paid a neighbor to haul a group of cows you bought. In those cases, you need to add the acquisition costs to the asset's purchase price to calculate it's depreciable basis as the total of the two.
The QuickBooks Farm Accounting Cookbook™ Volume IV, Fixed & Depreciable Assets: Machinery, Breeding Livestock, Buildings, and Land provides a lot of information about handling fixed asset transactions but, unfortunately, did not show how to add separately-paid-for acquisition costs to an asset's depreciable basis. The purpose of this article then, is to fill in that information gap.
This article will have limited use to you unless you are using the fixed asset recordkeeping methods described in The QuickBooks Farm Accounting Cookbook™ Volume IV.
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