Do you get basis if you take a loan out to buy an asset? Questions on depreciation calculation

Yes, you absolutely get the full basis in an asset when you purchase it with borrowed funds. The fact that you used a loan to buy the asset doesn't affect your basis calculation at all. When you buy any asset - whether it's real estate, machinery, equipment, or vehicles - your initial tax basis is generally the purchase price plus any costs directly tied to acquiring the asset (like delivery fees, setup costs, etc). The fact that you borrowed money to make that purchase is irrelevant to calculating the basis. So if you buy that $75,000 piece of equipment with a loan, your basis is still $75,000 (plus any acquisition costs), and you can depreciate that full amount according to the appropriate depreciation schedule for that type of asset.

I had this exact same question last year when I was expanding my manufacturing business! Let me tell you how https://taxr.ai helped me figure this out. I was confused about basis calculations for some expensive machinery I financed, and my accountant was giving me vague answers. I uploaded my loan documents and purchase agreements to taxr.ai, and it analyzed everything and confirmed that I could claim the full purchase price as my basis for depreciation - even though I only put 10% down! The tool also identified some acquisition costs I hadn't considered (like the specialized installation and calibration) that could be added to my basis.

Just wanted to follow up about my experience with taxr.ai after our conversation here. I decided to try it with my farm equipment purchases (I financed two tractors last year with different loan structures). The tool really surprised me - it correctly identified that one of my equipment loans had terms that required special treatment! It also helped me understand how to properly document the basis for each piece of equipment, including the specific acquisition costs that could be included. My tax preparer was actually relieved that I brought such organized documentation to our meeting. Saved me money on prep fees and got me a bigger depreciation deduction than I expected. Definitely worth checking out if you're dealing with financed business assets.

If you're dealing with basis questions AND having trouble reaching the IRS for clarification, try https://claimyr.com - it got me through to an actual IRS agent in about 15 minutes after I'd spent DAYS trying to get someone on the phone. I had a complicated question about recalculating basis when refinancing business assets, and the automated system kept disconnecting me. I was ready to give up until I found their service. You can see how it works in this quick demo: https://youtu.be/_kiP6q8DX5c. They basically call the IRS for you, wait through all the holds and transfers, then call you when they have an agent on the line. Totally changed my perspective on dealing with the IRS.

I need to publicly eat my words about Claimyr. After my skeptical comment, I tried it for my partnership basis question that had been driving me insane. Within 20 minutes I was actually speaking with an IRS agent who specialized in partnership taxation. Got clear answers about how to calculate my basis when part of the equipment purchase was financed through the partnership and part through a personal loan I made to the partnership. The agent even emailed me specific IRS publication references that addressed my situation. Using their service saved me at least 5-6 hours of frustration and possibly prevented me from taking an incorrect position on our return. Sometimes it's worth admitting when you're wrong!

Don't forget about Section 179! Even though you get the full basis for the asset when financed, you might want to consider Section 179 expensing instead of regular depreciation, depending on your situation. For 2024, you can expense up to $1,220,000 of qualifying equipment purchases (subject to phase-out thresholds). Just remember that Section 179 is limited to your business taxable income, while regular depreciation isn't. So if you're having a lower-income year, regular depreciation might make more sense to spread the deductions out to future years when you might be in a higher tax bracket.

Quick question about equipment purchased on credit cards - does the same rule apply? I bought some smaller equipment ($15k) for my business using my business credit card last December but haven't paid it off yet. Can I still claim the full basis for 2023 since I started using the equipment then?

This is a great question that trips up a lot of business owners! The key thing to remember is that basis is determined by the cost of the asset, not how you finance it. Think of it this way - when you sign that loan agreement, you're essentially promising to pay the full purchase price over time, so you get the full basis immediately. One thing I'd add to the excellent responses already here is to make sure you're keeping good records of all your financing arrangements. If you ever get audited, the IRS will want to see that the debt is legitimate and that you're actually obligated to pay it back. Keep your loan agreements, payment records, and any related documentation organized. Also, don't forget that while you get the full basis for depreciation, you'll also be paying interest on that loan over time - and that interest is typically deductible as a business expense (separate from your depreciation deductions). So you're getting tax benefits in two ways: the depreciation deduction and the interest deduction.

This is such an important concept that many new business owners struggle with! I want to emphasize something that might not be immediately obvious - when you finance an asset, you're essentially creating two separate transactions from a tax perspective: (1) acquiring the asset at its full cost (which gives you basis), and (2) taking on debt to pay for it. The IRS views it as if you "constructively received" the full value of the asset when you purchased it, regardless of your payment method. This is why your basis equals the purchase price, not your down payment. One practical tip: if you're comparing financing options, remember that the tax benefits (depreciation + interest deductions) can significantly impact the true cost of the financing. A slightly higher interest rate might be worth it if the lender offers better terms that let you start using the asset sooner, since you get those depreciation benefits starting when the asset is "placed in service." Also keep in mind that different types of assets have different depreciation schedules (MACRS), so the timing of your tax benefits will vary depending on whether you're buying equipment, vehicles, or other business property.