Depreciation of used fixed assets - when is it possible?

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Tax regulations allow entrepreneurs to use, in some cases, individually determined depreciation rates. Pursuant to Art. 22j of the Personal Income Tax Act, entrepreneurs may individually determine the depreciation rates for used or improved fixed assets entered for the first time in the records of a given taxpayer. Read the article and find out how used fixed assets are depreciated.

Definition of a used fixed asset

Pursuant to the Personal Income Tax Act, second-hand fixed assets are those that were used by a person other than the taxpayer for a period of at least 6 months prior to their acquisition. This definition applies to fixed assets included in groups 3-6 and 8 KŚT and means of transport.

In order to be considered as non-residential buildings, structures and premises as used fixed assets, they must have been used by the previous owner for at least 60 months, or 5 years, prior to their acquisition.

Example 1.

A taxpayer starting a business entered a passenger car in the fixed assets register. The vehicle was purchased by him 4 years earlier as a brand new one and during that time it was used for private purposes.

In this situation, the taxpayer cannot recognize this fixed asset as used, because the taxpayer wants to enter the car of which he is the first owner in the fixed assets register. So it is not a used car.

Example 2.

For the purposes of running a business, a taxpayer purchased a passenger car that had been used by the previous owner for over half a year.

Such a fixed asset can be considered used and thus it is possible to determine an individual depreciation rate if the vehicle documentation shows that it was used by the previous owner for a period of at least 6 months.

The provisions of the act clearly indicate that in order for a given asset to be considered used, it must be in use before its acquisition. Therefore, it is not possible for the purchased new machine to be used by the taxpayer for private purposes for 6 months, and then entered into the company's fixed assets and depreciated using the increased depreciation rate.

Evidence that the fixed asset was used by a third party should be in the possession of the taxpayer before the date of entering the asset into the fixed assets register.

Documenting the period of use of a fixed asset

It should also be noted that the entrepreneur himself will be required to prove that the purchased component was used when he applies the increase in depreciation.

The legislator did not specify the method of documenting the current period of use of the fixed asset, therefore it should be assumed that these may be any reliable evidence, e.g. documents confirming the purchase of the fixed asset by the previous owner and his statement on the use of the component for a specified period of time or a copy of the fixed assets register.

The confirmation of the above procedure is the individual interpretation issued by the Director of the Tax Chamber in Łódź of March 21, 2013, ref. No. IPTPB1 / 415-780 / 12-2 / AG in which we read that: (...) "using" should be understood as exploitation. The regulations do not regulate which evidence should be used to document the use of a fixed asset. Therefore, it should be assumed that these may be any reliable evidence, e.g. copies of: invoice for the purchase of a fixed asset, records of vehicle mileage, records of fixed assets and intangible assets kept by the previous user, declaration of the previous user on the use of the fixed asset at a certain time. The taxpayer is obliged to prove that the means of transport was used for at least 6 months before the purchase.

In turn, the director of the Tax Chamber in Warsaw, in the individual ruling of August 21, 2007, No.IPPB1 / 415-20 / 07-2 / AG, agreed with the taxpayer that he may consider the purchased passenger car as a used fixed asset on the basis of a registration certificate, vehicle card and purchase invoices.

Depreciation of used fixed assets

Accelerated depreciation of used fixed assets is possible provided that this component was first entered in the register of fixed assets of a given taxpayer. Using an asset by a taxpayer as private property and then introducing it into fixed assets does not entitle to use the depreciation rate for used fixed assets because this asset is not considered used. This means that one of the conditions for a fixed asset to be "used" is a change of owner.

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Example 3.

The taxpayer used a given fixed asset under an operating lease agreement, and then bought it as part of its business activity.

An asset purchased from an operating lease is not treated as used, because it was used by the taxpayer and not by a third party during the operating lease period, despite the fact that the second condition is met - the asset is entered for the first time in the register of fixed assets of a given the taxpayer because it was previously recorded in the lessor's rather than the lessee's records. The application of individual depreciation rates is possible only when the asset meets the definition of a used asset and is entered in the records of a given taxpayer for the first time. The entrepreneur determines the amortization rate individually, paying attention, however, to the regulations that limit it. According to them, the depreciation period of a used fixed asset entered for the first time in the records of a given entrepreneur cannot be shorter than:

- for fixed assets included in groups 3-6 and 8 of the classifications:

  • 24 months (2 years) - when their initial value does not exceed PLN 25,000,
  • 36 months (3 years) - when their initial value is higher than PLN 25,000 and does not exceed PLN 50,000,
  • 60 months (5 years) - in other cases;

- for means of transport, including passenger cars - 30 months (2.5 years);

- for buildings (premises) and structures 10 years, with some exceptions, including:

  • permanently attached to land commercial and service buildings listed in type 103 of the Classification and other non-residential buildings listed in type 109 of the classification, permanently attached to land - for which the depreciation period - cannot be less than 3 years,
  • goods kiosks with a cubature of less than 500 m3, camping houses and substitute buildings - for which the depreciation period - cannot be shorter than 3 years;

- for non-residential buildings (premises) for which the depreciation rate from the List of depreciation rates is 2.5% - 40 years minus the full number of years that have elapsed from the date of putting them into use for the first time until the date of entry into the register of fixed assets and value intangible assets kept by the taxpayer, but the depreciation period may not be less than 10 years.

Thus, the restrictions relate to the period of depreciation, which depends directly on the rate applied. The higher the depreciation rate, the faster the depreciation, i.e. the shorter its period. Therefore, in the case of cars, when the entrepreneur buys a new car, the standard rate from the List of depreciation rates is 20%, and the depreciation period is 5 years. If the purchased car met the definition of a used car, the entrepreneur could increase depreciation to 40% - then the depreciation period would be reduced to 2.5 years, which is in line with the regulations. Thus, the use of individual rates allows the taxpayer to depreciate twice as fast as when applying the standard rates.

Before introducing a fixed asset to the company, the entrepreneur should consider which depreciation method to adopt and whether individual rates can be applied for a given fixed asset. Depreciation of used fixed assets once accepted must be applied until its completion.