Taxing Definitions

The Idle Asset Rule

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When you buy long-lived assets for your business and place them in service, you can take a tax deduction for depreciation to recover your investment in the asset.

“Placed in service” is defined as when the asset is first ready and available for a specifically assigned function in your business (see Income Tax Regs. Section 1.167(a)-11(e)(1)(i)).

You continue to depreciate the asset until you sell it, or its useful life ends.

What happens when you temporarily stop using an asset? Under the idle asset rule, you can continue to take depreciation deductions over the useful life of the asset. The rule applies when the asset is available for use should the occasion arise, even though you don’t actually use it.

The idle asset rule comes from a 1985 court ruling for Piggly Wiggly grocery stores, and has two requirements: (1) that you’re already engaged in the business for which you purchased the equipment, and (2) you did all that was in your power to place the equipment into service.

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