National Football League team owners know a thing or two about tax breaks. And it’s paid off nicely.
A 2004 tweak to the tax code allows new NFL owners and owners of other professional sports teams to write off nearly the entire value of the franchise over the course of 15 years. They do so by claiming deductions for depreciation of assets, which in this case means pretty much everything associated with the team.
Current owners have benefitted big time. The value of NFL teams has risen an estimated 5% due to the depreciation tax break, while Major League baseball teams have added up to 19% in value. The owners do have to pay back the depreciation allowance when they sell the team, but that might not be for generations to come. In the meantime, they can put those funds to work signing better players or earning more in investment income.
How Depreciation Can Work for You
You may not have enough cash lying around to purchase a professional sports team, but if you own a business, you may be able to benefit from certain depreciation tax breaks that will reduce your tax liability year over year.
As the value of an asset drops over time – due to age, wear and tear, or decay – you can depreciate it, claiming it as a deduction on your taxes. This depreciation deduction is considered an expense on your annual income tax forms.
What You Can and Can’t Depreciate
You can typically take a depreciation deduction for any new capital asset, such as a building, a car, computers, cell phones and office furniture – what’s called tangible property. You may also be allowed to depreciate building or leasehold improvements you pay for. According to the IRS, you might also be able to depreciate intangible property such as patents or copyrights.
Unless you own a working coal mine or the like, you can’t depreciate land because it never gets used up. Inventory also may not be depreciated since it’s meant for sale. And, of course, anything you lease for use, whether it’s office space or equipment, can’t be depreciated because, well, you don’t own it in the first place.
How to Depreciate Your Assets
The IRS requires that you write off the depreciation over the useful life of the asset, which must be more than one year. You begin depreciating the asset once you start using it, and you stop depreciating it when you’ve fully recovered the cost or you stop using it in your business.
You can employ one of three depreciation methods:
- Straight-line method – you take equal yearly deductions
- Accelerated method – you take higher deductions in earlier years
- Section 179 deduction – you deduct the full cost in the year the asset was purchased
You could make the effort to figure out which assets qualify for depreciation, the number of years you should depreciate and the best depreciation method to use. But wouldn’t you rather be spending your time building up the strength of your home team? A good accountant can advise you on how to take maximum advantage of all the depreciation deductions you’re entitled to.