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How do I make sense of a depreciation schedule/worksheet?

Contributed by: LynR, FreeTaxUSA Agent, Tax Pro

Calculator, magnifying glass, and torn notebook paper reading "Depreciation Schedule" next to a small alarm clock.

Are you preparing your own tax return for the first time? If you have a business or rental property, depreciating your assets can feel intimidating — especially if you’re not familiar with the depreciation schedule that accompanies your prior tax return.

When you have a business or rental asset that must be depreciated over multiple years, accuracy is important year over year. Several factors determine the correct depreciation of your assets. This article doesn’t go into depth on how to depreciate property and the many facets of that topic. Rather, this is an overview of how to read the depreciation schedule from a prior year return to correctly enter the asset into FreeTaxUSA on your current year return. Let’s dig in.

Example depreciation schedule from FreeTaxUSA:

Screenshot of a "Federal Schedule C Depreciation Schedule" for business activity "Event Organizer." The table has numbered columns: 1. Asset Description, 2. Date In Service/Date Sold, 3. Asset Cost/Depreciation Basis, 4. Business Percent/Land, 5. Depreciation Basis, 6. Current Section 179, 7. Current Bonus/Prior Bonus, 8. Prior Section 179, 9. Life, 10. Method, 11. Convention, 12. Prior Depreciation, and 13. Current Depreciation. Two assets are listed: a Chevy Silverado, placed in service 02/11/23, with an asset cost of $68,500, 50.03% business use, $7,500 prior Section 179, $5,000 prior bonus depreciation, a 5-year life, half-year convention, 200DB method, $3,995 prior depreciation, and $5,854 current depreciation; and a copier, placed in service 01/01/24, with an asset cost of $525, 75% business use, a 5-year life, half-year convention, 200DB method, $79 prior depreciation, and $126 current depreciation.

Key terms on a depreciation schedule:

Asset Description: The name or description of asset.
Date In Service: The date you began using the asset for business purposes. This may be different than the purchase date if the asset was not originally used for business purposes.
Asset Cost: Also known as original cost/basis. Typically, your purchase price of the asset. Closing costs, improvements, and other items may affect your cost basis. This article has more information on figuring your cost basis.
Business Use Percentage: If you use the asset only for business, this will be 100%. If you use it for both business and personal purposes, you must determine what percentage of use is business-related. Only that business use percentage can be depreciated.
Depreciable Basis: This is the original cost/basis multiplied by the business use percentage.
Current Section 179 Deduction: In the year you place the asset in service for your business, you can opt to take the Section 179 deduction if the asset meets certain criteria.
Current Bonus Depreciation: Like the Section 179 deduction, this can be taken in the year you place the asset in service for your business if it meets certain criteria.
Prior 179 Deduction/Prior Bonus: If you placed the asset in service in a prior year and took the Section 179 deduction or bonus depreciation, then you’ll see an amount in this column.
Depreciable Life: This is the acceptable life/time frame over which the asset is depreciated. Many assets have set depreciable lives such as:
1. Cars – 5 years
2. Office furniture – 7 years
3. Computer equipment – 5 years
4. Residential rental property – 27.5 years
Depreciation method: There are several methods of depreciation. Some examples are straight line (SL), double declining balance (200 DB), 150% declining balance (150 DB), etc. For entry purposes, you don’t need to understand how these methods work—you just need to know what method has been used previously for each asset.
Convention – Modified Accelerated Cost Recovery System (MACRS) can be half year (HY), mid-quarter (MQ), or mid-month (MM).
Prior Depreciation: This is the total of all prior year regular depreciation expenses reported on this asset (amount does not include prior year Section 179 or bonus depreciation).
Current Depreciation: The amount of depreciation expense being claimed on the current tax return for this asset.

Not all depreciation schedules look the same, but they should all have the same information. They generally look like a table, grid, or spreadsheet. Here’s another example of a depreciation schedule with the same key terms labeled.

Screenshot of a "2024 Federal Summary Depreciation Schedule," dated 12/31/24, page 1. The table lists numbered assets with columns for description, date acquired, date sold, cost/basis, business percentage, prior Section 179/SDA depreciation, method, life, and current depreciation. Numbered callouts highlight key columns: description, date acquired, cost/basis, business percent, prior 179/SDA depreciation, method, life, and current depreciation. Entries include items such as dental equipment, a Cerec machine, computers and software, and lab equipment, most using the 200DB HY depreciation method with useful lives of 5 or 7 years.

Can I just use Form 4562?

Form 4562, Depreciation and Amortization, does list the current year’s depreciation information, so you can gather a lot of the same information from it. However, Form 4562 doesn’t report any of the prior year depreciation expense taken. If you have every Form 4562 filed since you began depreciating the asset, then you can add up the depreciation claimed each year, along with any Section 179 or bonus depreciation taken, to reconstruct the asset’s depreciation schedule yourself. This approach isn’t ideal, though, and may lead to errors if you’re not very familiar with this form and depreciation in general.

Rental property example

When depreciating a rental property, be aware that any land associated with the rental property is not depreciable. You can only depreciate the rental structure itself. Let’s say you purchased a home for $375,000 that sits on a 0.2-acre lot. Your county assessor statement lists the land value as $75,000. This means the remaining $300,000 is the value of the rental home. If your rental is used 100% for rental income purposes, then your depreciation schedule would look like this:

What’s next?

Now that you know how to read your depreciation schedule, you’re ready to enter your business asset into FreeTaxUSA. See this Community article, “How do I enter a business/rental asset in FreeTaxUSA?” to help you through those steps.