Moving personal equipment into a business: find the depreciation basis on the conversion date
When personal tangible equipment moves into exclusive business use, its depreciation basis is the lesser of its adjusted basis and its fair market value on the conversion date. The conversion date is also treated as the placed-in-service date.
The press in the workshop
A sole proprietor owns a press bought for personal projects and decides to use it only for paid work. The preparer needs one number for the tax asset schedule: the basis for depreciation. Original cost is only part of that answer.
Publication 946 sets the depreciable basis of property changed from personal to business use as the lesser of its fair market value on the date of the change and its adjusted basis on that date. Adjusted basis starts from original cost or other basis, adds permanent improvements and subtracts basis reductions.
Supporting the market value
Publication 551 describes fair market value as the price at which property would change hands between a buyer and a seller who are not compelled to act and who both know the relevant facts. Sales of comparable property on or near the conversion date are useful evidence, and an appraisal can serve the same purpose.
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When depreciation begins
Publication 946 treats property converted from personal to business use as placed in service on the conversion date, and it ties the start of depreciation to when property is ready and available for its specific business use. The basis entered in Part III of Form 4562 is an input, separate from the year's depreciation amount.
Publication 946 chapter 2 addresses section 179 separately, and this article reaches no section 179 or bonus conclusion. The cited 2025 edition is one edition of a rule that applies across years.
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Hypothetical calculation
Hypothetical: a sole proprietor owns a workshop press originally acquired for personal use and dedicates it 100% to the business on October 1, 2026, when it is ready and available for that work. The original price was $6,500, a documented permanent basis addition was $900, and there are no basis reductions. Comparable sales and an appraisal support a $5,100 conversion-date fair market value. No credits or other adjustments apply.
The $2,300 gap between adjusted basis and market value does not become a depreciation deduction because of the conversion. The move creates no second purchase price and no current expense, and $5,100 is the starting input rather than the year-one charge.
| Step | Calculation | Result |
|---|---|---|
| Adjusted basis at conversion | $6,500 + $900 | $7,400 |
| Conversion-date fair market value | Comparable sales and appraisal | $5,100 |
| Depreciation basis | Lesser of $7,400 and $5,100 | $5,100 |
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Conversion file checklist
This workflow assumes the same individual owns the asset throughout and that it is ordinary, non-listed tangible equipment. Entity transfers, vehicles, mixed-use percentages, rental real estate, land, later dispositions and book entries need separate analysis.
Before adding the asset to the depreciation schedule, put the original receipts and the conversion-date valuation in one file, then record both figures with the conversion date.
- Dated purchase receipt
- Receipts for permanent improvements
- Evidence of the change to exclusive business use and its date
- Make, model and condition notes
- Comparable sold prices around the date, or an appraisal
- Adjusted basis, market value and effective date in the tax asset schedule
- Note on whether vehicle, mixed-use, entity transfer or other special rules apply
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