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Calculating the Useful Life of a Fixed Asset
By Lita Epstein from Bookkeeping For Dummies
Any asset that has a lifespan of more than a year is called a fixed asset. All businesses use equipment, furnishings, and vehicles that last more than a year. Although they may last longer than other assets, even fixed assets eventually get old and need replacing.
Because your business…show more content… All businesses use equipment, furnishings, and vehicles that last more than a year. Although they may last longer than other assets, even fixed assets eventually get old and need replacing.
Because your business should match its expenses with its revenue, you don’t want to write off the full expense of a fixed asset in one year. After all, you’ll certainly be making use of the asset for more than one year.
You’re probably wondering how you figure out the useful life of a fixed asset. Well, the IRS has done the dirty work for you by creating a chart that spells out the recovery periods allowed for business equipment (see the table below). Depreciation Recovery Periods for Business Equipment | Property Class Recovery Period | Business Equipment | 3-year property | Tractor units and horses over two years old | 5-year property | Cars, taxis, buses, trucks, computers, office machines (faxes, copiers, calculators, and so on), research equipment, and cattle | 7-year property | Office furniture and fixtures | 10-year property | Water transportation equipment, single-purpose agricultural or horticultural structures, and fruit- or nut-bearing vines and trees | 15-year property | Land improvements, such as shrubbery, fences, roads, and bridges | 20-year property | Farm buildings that are not