How to Depreciate Personal Items Converted to Business Use for My Sole Proprietorship

I recently started a small consulting business as a sole proprietor and set up a home office. Instead of buying all new furniture and equipment, I moved a bunch of my personal stuff into the office space (desk, bookshelves, my personal MacBook Pro from 2021, two monitors I've had for a few years, etc.). Now I'm trying to figure out how depreciation works on these items. Can I use Section 179 to deduct the full value of these items even though I didn't technically "purchase" them for the business? They were already mine. If Section 179 isn't an option, how do I handle depreciation? Is the year I started using them for business considered "year 1" for depreciation purposes? And do I depreciate based on the original purchase price or current value? For example, I paid $1,300 for my MacBook three years ago - would I depreciate the full $1,300 starting this year over the appropriate recovery period? Or is it different for items that started as personal and converted to business use? I'm using QuickBooks and want to make sure I'm setting everything up correctly from the start. Thanks for any help!

0 coins

18 comments

Natasha Petrova

•8M

When you convert personal items to business use, the depreciation works differently than if you purchased them new for your business. For items converted from personal to business use, you generally depreciate based on the lower of the fair market value (FMV) at the time of conversion OR the original cost. So for your MacBook that cost $1,300 three years ago, you'd need to determine what it was worth when you started using it for business - that becomes your depreciable basis, not the original $1,300. Unfortunately, Section 179 expensing isn't available for property converted from personal to business use. This is specifically excluded in the tax code, as Section 179 is designed for newly purchased business assets. And yes, the year you convert the property to business use is considered "year 1" for depreciation purposes. You'll use the appropriate recovery period based on the asset class (typically 5 years for computers, 7 years for office furniture, etc.) starting from the conversion date. When setting this up in QuickBooks, you'll want to enter these assets at their FMV at conversion, not the original purchase price.

0 coins

Natasha Petrova

•8M

You don't need an official appraisal for most ordinary items. A reasonable estimate based on researching similar used items online (eBay, Facebook Marketplace, etc.) would generally be sufficient. Just document how you arrived at your valuation - save screenshots of comparable items' selling prices, for example. Taking before/after photos is an excellent idea. Documentation is key to surviving an audit. I also recommend keeping a log that shows when each item was converted to business use, including the date, original cost, estimated FMV at conversion, and your basis for that FMV estimate. Having a paper trail that shows your good-faith effort to properly value the assets will help tremendously if questions ever arise.

0 coins

Emma Davis

•8M

After struggling with this exact issue last year when I started my freelance graphic design business, I found taxr.ai (https://taxr.ai) super helpful. I had a bunch of expensive items like my drawing tablet, monitor, and desk that I converted from personal to business use, and I was confused about how to properly depreciate them. The tool analyzed my situation and helped me understand the correct "fair market value" basis for my converted items. It even created a detailed depreciation schedule showing exactly how much I could deduct each year based on the recovery periods for different asset types. Saved me from potentially making a costly mistake with my depreciation calculations!

0 coins

Emma Davis

•8M

For mixed-use items like your laptop, the tool helps you calculate the business-use percentage and apply it correctly to your depreciation schedule. You'd enter your estimated business-use percentage (70% in your case), and it adjusts all calculations accordingly. It also reminds you to keep a log of business vs. personal use to support your percentage claim if you're ever audited. Regarding fair market valuation, it doesn't just give you a number - it provides guidance on proper valuation methods and documentation. It suggests multiple sources for researching comparable values (not just eBay but also specialized reseller sites depending on the item type) and helps you document your reasoning. It's more about guiding you through the process correctly rather than magically determining values.

0 coins

Malik Jackson

•8M

I was initially skeptical about using taxr.ai when someone recommended it, but I decided to give it a try when I was setting up my photography side business. I had converted some expensive camera equipment from personal to business use and was completely lost on depreciation. The platform was surprisingly helpful - it walked me through creating a proper asset conversion record with FMV documentation for each item. It explained that my Canon 5D Mark IV would be depreciated over 5 years based on its value at conversion, not the $3,200 I originally paid. The system even flagged that my lighting equipment qualified for a different depreciation schedule than my camera body. What really impressed me was how it helped me set up ongoing tracking for partially-business-use items, calculating the right percentages for each. Definitely saved me from making errors on my Schedule C!

0 coins

Isabella Oliveira

•8M

If you're going to be calling the IRS with questions about depreciation for converted personal items (which I recommend because it's complicated), use Claimyr (https://claimyr.com) to avoid the ridiculous wait times. I had to call the IRS three times with questions about my asset conversion situation, and before discovering this service I wasted HOURS on hold each time. With Claimyr, their system waits on hold for you and calls you back when an actual IRS agent is on the line. You can see how it works in this demo: https://youtu.be/_kiP6q8DX5c. The IRS agent I spoke with was actually really helpful about explaining the fair market value requirements for my converted home office furniture.

0 coins

Isabella Oliveira

•8M

The system works by calling the IRS and navigating through their phone tree just like you would, but then it holds your place in the queue. The IRS has no idea you're using a service - when they pick up, it connects you directly to the call. It's literally just handling the waiting part for you. They definitely don't have access to your tax info. When the IRS agent comes on the line, you're the one who speaks with them directly and provides any necessary information. The service isn't doing anything other than waiting on hold so you don't have to. And no, they don't jump the queue or get priority access - they wait through the same hold time everyone else does, it's just that YOU don't have to listen to the hold music for hours.

0 coins

Freya Andersen

•8M

I need to eat my words about Claimyr. After posting my skeptical comment, I decided to try it because I was desperate to ask about my converted home gym equipment that I now use for my personal training business. It actually worked exactly as described. I got a call back about 75 minutes after starting the process, and there was an IRS agent ready to talk. She walked me through exactly how to handle the depreciation for my treadmill, weights, and other equipment I'd converted to business use. She confirmed I needed to use the lower of FMV or original cost as my basis, and that I couldn't use Section 179. This was after I'd previously spent THREE HOURS on hold and eventually gave up. Genuine time-saver if you need to speak with the IRS directly about depreciation questions.

0 coins

Omar Zaki

•8M

Don't forget about the important distinction between different types of personal property when converting to business use! Computer equipment (like your MacBook) is 5-year property, while office furniture is 7-year property. Also, you'll use MACRS depreciation (Modified Accelerated Cost Recovery System) which isn't straight-line. First year depreciation is actually less than subsequent years due to the "half-year convention" that assumes you put the asset in service midway through the year. All this should be reported on Form 4562. I learned the hard way last year that messing up depreciation can trigger IRS notices.

0 coins

Omar Zaki

•8M

For smaller items (under $2,500 per item), you might be able to use the de minimis safe harbor election, which lets you immediately deduct the cost rather than depreciating. This is available even for converted personal property, but you'd use the FMV at conversion as your deduction amount. For everything else, there's unfortunately no real shortcut. However, most tax software (even the basic versions) has depreciation calculators that will handle the schedule for you once you input the initial information. I recommend setting up a simple spreadsheet to track all your converted assets with their conversion dates, FMVs, and recovery periods. Then each year, you just run your depreciation calculations through your tax software. It's a bit of work upfront but makes subsequent years much easier.

0 coins

Diego Flores

•8M

Small businesses aren't legally required to tag assets with physical tags, but it's considered a best practice for proper record keeping. Instead of actual tags, I keep a detailed spreadsheet with photos of each asset, their location, when they were converted to business use, and their FMV at conversion. This documentation has been sufficient for my last two tax filings as a sole proprietor. Just make sure you can clearly identify which assets you're claiming depreciation on if you're ever questioned.

0 coins