What can't be depreciated?

Land can't be depreciated, and neither can several other categories of property that fall outside IRS depreciation rules, which matters for construction equipment appraisals because a piece of your fleet's value may need to be separated out before you calculate depreciation.

Beyond land, which is never depreciable regardless of how it's used, the IRS excludes several other categories that construction equipment owners run into:

• Property used strictly for personal purposes. If a piece of equipment has mixed personal and business use, only the business-use portion qualifies for depreciation.
• Leased equipment. Depreciation generally requires ownership; a lessee typically cannot depreciate equipment it doesn't own.
• Equipment placed in service and disposed of in the same tax year. No depreciation deduction applies if the asset never carries over into a new tax year.
• Equipment used to build a capital improvement. Rather than being depreciated on its own, the cost of using that equipment gets added to the basis of the improvement it built.
• Property with no determinable useful life, or expected to last one year or less. Depreciation assumes a multi-year decline in value; assets that don't meet that threshold don't qualify.
• Intangible property and certain other IRS-excepted property, along with specific MACRS exclusions such as some pre-1987 assets.

For appraisal purposes, this means the depreciable basis of a piece of construction equipment is typically the acquisition cost minus any non-depreciable portion and minus expected salvage value. Getting this right affects fair market value conclusions used for financing, insurance, and estate purposes. If you need a professional heavy equipment appraisal that accounts for depreciation correctly, our appraisers prepare USPAP-compliant valuations for construction, agricultural, and industrial machinery.

For related questions, see how Bluebook value is calculated or how many years construction equipment is depreciated.