Fences built on certain types of property may qualify as depreciating deductions. Fences built on non-rental residential property cannot be deducted, but do add to the home's "tax basis" for a tax break when the home is sold in the future.
Fences built on rental property or for agricultural purposes can be deducted on a depreciating basis. The depreciation schedule for agricultural fences is seven years, but the depreciation schedule for fences on rental property is 15 or 20 years, depending on the depreciation system used. For all other for-profit businesses, fences do not qualify as depreciating assets.
Fence Deductions for Personal Residences
You cannot deduct the cost of a fence built on your personal property, but you can still get a tax break if certain conditions are met. First and foremost, the fence must be considered a "home improvement" rather than a home repair. IRS Publication 530 states that home improvements add to the house's material value, whereas home repairs simply maintain its current condition. Most new fence installations should qualify as home improvements.
If your fence is considered a home improvement, add up the cost of materials and services related to the fence. Land surveys, equipment rental and professional labor are all applicable costs. If you install the fence yourself, you cannot count your own labor as a cost.
Keep a record of all those costs and add it to your home's "tax basis." This is the purchase price of the home and the cost of all improvements. When you sell your home, the tax basis is subtracted from the sale price. The leftover amount is what you'll pay taxes on, so keeping an accurate record of all home improvements will prove beneficial in the long run.
Fence Deductions for Rental Properties
You can deduct the depreciated cost of home improvements – including fences – on your taxes each year if the home is rented out. You can only deduct these home improvements if you're the landlord, not if you're the renter. According to IRS Publication 527, fences are given a depreciation life of 15 years under the General Depreciation System or 20 years under the Alternative Depreciation System.
A fence can be depreciated using the straight-line calculation. This method allows the same amount to be deducted each year because the asset value doesn't dramatically decline. The other depreciation method – called a declining balance – will result in a high initial deduction and then a steady decline in depreciation value over the next 15 years.
Consult with your tax adviser about which depreciation calculation makes the most sense for your situation, as there are pros and cons to both.
Fence Deductions for Agricultural Businesses
According to IRS Publication 225, most businesses cannot deduct the depreciated cost of fences from their taxes. That's because fences are considered "land improvements" and do not qualify as depreciable property under Section 179. Land itself is also not considered depreciable property.
Agricultural fences are an exception, however. According to IRS Publication 946, the depreciation of agricultural fences must be calculated using the General Depreciation System, not the Alternative Depreciation System. Fences installed after 2017 have a depreciation life of seven years. The depreciation of agricultural fences can be calculated using either the declining balance or straight-line method.
If you lease your land to someone else for agricultural purposes, consult with your tax adviser about qualifying depreciations.
FAQs
In a normal case, you can deduct both the cost of the labor and the cost of the materials for your new fence. However, you can't deduct the cost of your own labor- which means if you choose to DIY your fence you could miss out on some of the tax savings.
How many years do you depreciate a fence? ›
For example, appliances may be depreciated over five years, while improvements like a road or fence have a 15-year depreciation period.
Does fencing qualify for Section 179? ›
While you can claim a Section 179 deduction for most kinds of property or assets, there are some types of assets that don't qualify: Real property – Buildings, land and land improvements (this includes swimming pools, paved parking areas, docks, bridges and fences) Air conditioning and heating equipment.
What type of property is a fence for depreciation? ›
As the fence is MACRS property with a recovery period of less than 20 years, it would qualify for 100% bonus depreciation. More information regarding what property qualifies for bonus depreciation can be found at https://www.irs.gov/pub/irs-drop/td-9874.pdf.
Is fencing a capital expense? ›
Examples of expenditures to be capitalized as facilities and other improvements include: Fencing and gates. Landscaping.
Is fencing capital or expense? ›
It is reasonable to say that fencing supplies purchased for maintenance of a fence as mentioned in the client's question would be considered deductible immediately. However, if the supplies were purchased as a whole to install a new fence around a pasture, then those costs would have to be capitalized.
How do you depreciate a new fence? ›
If the fence cost less than $2,500 you can deduct it in one year. If it cost more than $2,500 you can still deduct it in one year, using the 100% bonus depreciation rule. Note: This 100% bonus depreciation rule expires at the end of 2022.
Is a fence a land improvement? ›
Examples of land improvements include: Fences. Retaining walls. Parking lots.
What is the asset life of a fence? ›
Assets that have an estimated useful lifespan of 15 years include improvements to land or business property, such as shrubbery, roads, bridges, and fences. Assets that have an estimated useful lifespan of 20 years include farm buildings that are neither horticultural nor agricultural structures.
Do you depreciate fencing? ›
Land Improvements
Excavating, grading, landscaping, fencing, and more have a depreciation period of 15 years. This means they are eligible for deductions through bonus depreciation. Check the specific type of land improvement's depreciation period, as it may vary.
§1250 property. Such items as sidewalks, roads, canals, waterways, wharves, docks, bridges, fences, landscaping, shrubbery and transmission towers all meet the definition of a land improvement.
What type of property qualifies for 179 deduction? ›
To qualify for a Section 179 deduction, your asset must be: Tangible. Physical property such as furniture, equipment, and most computer software qualify for Section 179. Intangible assets like patents or copyrights do not.
What is the bonus depreciation for 2023? ›
The rules allow Bonus Depreciation to 100% for all qualified purchases made between September 27, 2017 and January 1, 2023. Bonus Depreciation now ramps down to 80%, starting in 2023. Bonus depreciation will continue to ramp down for ensuing years: 60% for 2024, 40% for 2025, 20% for 2026, and 0% beginning in 2027.
What property Cannot be depreciated? ›
Depreciable or Not Depreciable
If you use property, such as a car, for both business or investment and personal purposes, you can depreciate only the business or investment use portion. Land is never depreciable, although buildings and certain land improvements may be.
What is the Section 179 limit for 2023? ›
The Section 179 deduction limit for 2023 was raised to $1,160,000 and the total equipment purchase limit was raised to $2,890,000. This is an increase from the 2022 Section 179 tax deduction which was set at a $1,080,000 limit with a threshold of $2,700,000 in total purchases.
Is a fence replacement a capital improvement? ›
Answer: That's a capital improvement, much like paving your driveway or installing new plumbing.
What is fencing in accounting? ›
In business and finance, ringfencing or ring-fencing occurs when a portion of a company's assets or profits are financially separated without necessarily being operated as a separate entity.
What is a fence in accounting? ›
A ring-fence is a virtual barrier that segregates a portion of an individual's or company's financial assets from the rest. This may be done to reserve money for a specific purpose, to reduce taxes on the individual or company, or to protect the assets from losses incurred by riskier operations.
What construction costs are tax deductible? ›
You can also deduct the cost of tools and equipment, work clothing and gear, advertising and marketing expenses, subcontractor or employee salaries, phone and internet costs, membership and license fees, subscriptions, and other expenses.
Is fencing a capital improvement? ›
Tax Filing
The Internal Revenue Service requires that some improvements be capitalized and the expense related to them depreciated over their useful life. For example, fences are considered a capital improvement and have a useful life of five or seven years, depending on the depreciation method you use.
Property that doesn't qualify as a tax write-off is the actual land that you own or land/buildings that you inherit. The question is, “can a barn be a tax write-off?” The answer is yes!
Can I write-off my shed? ›
Are shed taxes deductible? An outdoor structure such as a shed can be a deductible business expense. It is possible to take a write-off for an independent shed structure on your property that you use exclusively and regularly for business. The deduction will include any expenses connected to the shed structure.
