A business, like a person or a family, can have personal property. The types of property that a business owns are slightly different from that of an individual, and the tax issues involved with business property are also different.
Personal property for an individual or business is property owned by that person or business which is movable and is not affixed to or associated with the land. Basically, personal property is everything except real property (land and buildings).
Personal property for a business would include everything from the smallest stapler or calculator to a company-owned car or large piece of machinery. It includes manufacturing equipment, office furniture and equipment, computers, tablets, cell phones, and vehicles purchased and used by the business, and, basically, everything that isn't "nailed down." In other words, personal property is movable, while real property is not.
Types of Personal Property
Tangible personal property is personal property that can be felt or touched. Tangible personal property in general (not just for businesses) includes furniture, equipment, vehicles, household goods, collectibles, and jewelry.
Intangible personal property is personal property that cannot be felt or touched. Intangible personal property includes securities, bonds, CD's, and other intangible assets. Intellectual property—patents, copyrights, trademarks/service marks—is considered personal property because these types of property can be bought and sold or licensed.
Listed property is a specific type of personal property. It consists of property that can be used for either business or personal reasons.
Personal Property and Business Loans
Business property can be used to provide security for a business loan. Either real property (land and buildings) or personal property can be used as collateral for a loan. The allocation of the security on property allows the lender to take back or sell the property if the business defaults on the loan.
One good example is getting a loan to purchase a car for business use. The loan is a business loan, not a personal one, and the interest on the loan is deductible as a business expense.
Because of the mobile nature of personal property, and because personal property decreases in value over time, it is more difficult for a creditor to use personal property to secure a loan. For example, if a bank loans money on a building, it can be sure that the building will not be moved. But if a bank loans money on the car, the car can be driven away and it depreciates over time.
Personal Property and Business Taxes
The purchase of personal property is a deductible business expense. In some cases, the purchase price can be listed as a business expense in the first year of purchase. In most cases, however, the cost of the item of personal property must be spread out over the useful life of the item.
This process of spreading out an expense over time is called either depreciation (for tangible property) or amortization (for intangible property). Each item of property or type of property must be depreciated or amortized based on a schedule. Listed property, for example, usually must be depreciated using the alternative depreciation method. This method, which increases the number of years over which property may be depreciated, and this decreases the yearly depreciation expense you can take.
The calculation of depreciation is complicated, and it should be done with the help of an accountant.
Keeping Records on Personal Property
Whether you have one computer for your solo business or a roomful of vehicles for a delivery company, you need to keep good records on business property. From the time of purchase, you need to keep good records on each item of business personal property, including the cost of the item and any depreciation taken on the item. The records are for your own use, and to back up any deductions, for the IRS.