Legal Definitions - depreciable asset

A depreciable asset is a tangible item that a business owns and uses to generate income or profit. This asset must have a useful life extending beyond one year and is expected to gradually lose value over time due to factors like wear and tear, obsolescence, or usage. Under tax laws, businesses are allowed to account for this decline in value by deducting a portion of the asset's cost each year, which is known as depreciation. This deduction helps reflect the asset's diminishing economic usefulness and reduces the business's taxable income.

• A manufacturing company purchases a specialized industrial robot to automate part of its assembly line. This robot is a depreciable asset because it is a tangible piece of equipment used directly in the business to produce goods and generate revenue. It has an expected operational life of many years, and its value will gradually decrease over time due to wear and tear, technological advancements, and eventual obsolescence. The company can therefore claim tax deductions for a portion of its cost each year, reflecting this decline in value.

• A local bakery invests in a new refrigerated delivery van to transport its products to customers and events. This van is a depreciable asset. It is a physical vehicle essential for the bakery's income-generating activities, has a useful life of several years, and its value will diminish over time due to accumulated mileage, wear and tear, and the need for eventual replacement. The bakery can account for this decline in value through annual depreciation deductions on its tax returns.

• A medical practice buys a new X-ray machine for its clinic. This X-ray machine is a depreciable asset. It is a tangible piece of medical equipment used to provide services and generate income for the practice. It has a useful life of several years, and its value will decrease over time as its components wear out, technology improves, and it eventually becomes outdated. The medical practice can deduct a portion of the machine's cost each year as depreciation.