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How to Determine the Depreciation of a Fence

Lee Roberts

Fences are practical additions to property that help some businesses to thrive; however, fences lose value and function as they age. The lost value reflects the normal wear and tear that fences experience. Depreciation is a method to account for the fence's cost and value in a systematic manner.

Appreciate your fence even when you depreciate it.

Numerous businesses need fences, whether it is a day care center keeping its young charges from charging off into danger or a garden center protecting its prized petunias from the hands of exuberant passersby.

Tip

The IRS has introduced the term "cost recovery" to refer to depreciation. The current scheme, as of February 2011, is the Modified Accelerated Cost Recovery System, or MACRS.

Warning

Do not confuse book depreciation, which you determine for your own business accounting purposes, with IRS depreciation, which you determine for tax reporting purposes. Larger businesses use book depreciation to gain a more accurate measure of the usefulness of their assets and to calculate replacement times with greater precision. Smaller businesses tend to use only IRS guidelines for all of their accounting purposes.

  1. Choose 15 years as the useful life of the fence as dictated by the Internal Revenue Service as the useful life for improvements added to the land under the General Depreciation System. Make a separate record if your assessment of your fence's lifespan differs significantly, and keep the information for nontax purposes.

  2. Identify the date that you first put the fence into service. Choose either the midmonth or midquarter convention to account for the first and last years the fence is in service.

  3. Determine the cost of the fence. Include the price you paid for the fence, as well as items such as the cost to survey the land to place the fence and installation fees. Use the fair market value of the fence instead of the cost if you are converting it from personal to business use.

  4. Calculate the expected sale value of the fence at the end of its useful life, the salvage value.

  5. Subtract the salvage value from the total cost of the fence. Divide that figure by the useful life of the fence to determine the amount of annual depreciation for your fence. Adjust your values for the first and last years in accordance with the midmonth or midquarter convention.

The Drip Cap

  • Fences are practical additions to property that help some businesses to thrive; however, fences lose value and function as they age.
  • Make a separate record if your assessment of your fence's lifespan differs significantly, and keep the information for nontax purposes.
  • Identify the date that you first put the fence into service.