By Jean Murray, About.com Guide
Reading IRS memos isn't much fun, because they contain strange phrases like "putting an asset into service." It's important to understand this kind of phrasing, so you can make sure you get the tax benefits you want. So, let's look at the concept of putting an asset into service.
Tax Deductions for Business Assets
If you buy a business asset, like, say, an airplane, you get business tax deductions on the depreciation for that asset, and depreciation deductions are pretty substantial right now. But you can't just buy an asset and not use it. If you don't use the asset in the year you purchased it, you can't claim depreciation expenses for that asset.
Case in point: A business owner bought an airplane for business use and claimed a Section 179 deduction for the asset, but she didn't have a pilot. Her husband took some lessons, but he never took it on a business trip. So the Tax Court disallowed any business expenses (depreciation, maintenance, gas, hangar fees, etc.) for the airplane.
In its opinion, the Tax Court said that "placed in service" means the time that property (that is, an asset) is first placed by the taxpayer in a condition or state of readiness and availability for a specifically assigned function," as in a trade or business or for the production of income. In this case, the owner's husband used the airplane for personal flying lessons, but it was never used for business purposes. The Tax Court also noted that the taxpayer bears the burden of proof to show that the asset was used for business purposes, in order to support the tax deduction.
Bottom line:
If you buy an asset for business purposes, and you expect to get a tax deduction for depreciation and other expenses associated with the asset, start using it. Or lose it.
Source: About.com
