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What Is a Fully Depreciated Asset?

By Amanda McMullen
Updated May 17, 2024
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A fully depreciated asset is an asset that has been depreciated over time for accounting or tax purposes and can no longer be depreciated. Such assets are considered to be worth only the amount of money that they would bring in salvage. Common depreciated assets include machinery, vehicles and real estate.

Accounting depreciation is a process that companies use to spread the costs associated with purchasing a piece of equipment, real estate or other asset over several years. This procedure allows for a better estimation of business expenses. When an asset is fully depreciated for accounting purposes, all of the expenses associated with its purchase have been accounted for on the company's balance sheets.

Although a fully depreciated asset is considered to be worthless on paper, it might still in be working order and might still produce income for the company. Conservative accounting practices usually require assets to be depreciated according to an accelerated schedule so that all expenses related to the asset are recognized while it is still in use. Using such practices causes assets to reach full depreciation before they are truly out of commission.

Fully depreciated assets must still be reported on the company's balance sheet. The asset must be listed with its original value and the amount that has been depreciated over time. A company must continue to report a fully depreciated asset on its balance sheets until the asset is salvaged, sold or destroyed.

Companies also use depreciation for tax purposes. They are often allowed to deduct certain business expenses from their taxable income but cannot deduct the entire cost of most purchases in a single tax year. Instead, only a portion of each expense can be deducted each year until that asset has been fully depreciated. After that, companies can no longer claim those deductions on their tax returns.

Tax depreciation and accounting depreciation typically follow different schedules, however, so a company might have an asset that is fully depreciated for tax purposes but not for accounting purposes. Such an asset will no longer warrant a tax deduction but can still be listed as an expense on a balance sheet. Likewise, a fully depreciated asset for accounting purposes might still warrant a tax deduction if it isn't fully depreciated for tax purposes.

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