How to Convert Personal Use Property to Business Use?

How to Convert Personal Use Property to Business Use?
How to Convert Personal Use Property to Business Use?

What Is Business Personal Property?

When you decide to buy land for commercial use or start your own business (with personal use property), it is important to understand how much you have to pay in taxes and how to report them to avoid possible trouble with taxation department. The things are especially important when it comes to business property that is usually divided into real estate property and personal property.

Business personal property is considered any movable property not associated with the land. Basically, it is everything not qualified as real estate property. For example, computers, machinery, furniture, and supplies are personal property. If you decide to rent out your house for profit, it will be considered real estate property.

Converting Personal Use Property to Business Use

Starting a small business, you may see the chances to apply some of your personal property to business use. This can not only save you some money but makes you eligible to claim a deduction for depreciation of the equipment. The transfer can be done in three steps:

  1. Determine original costs (adjustable basis) and fair market value of the property you want to use for your business;
  2. Donate or sell it to your business to transfer the ownership;
  3. Adjust the accounting records to reflect converting personal assets to business use and do not forget to indicate it on the forms you fill out (e.g., SBA Form 413).

It applies to personal property converted from personal use to business use. If you want to claim a tax deduction as a homeowner due to using your home for business purpose, check Publication 587, Business Use of Your Home (Including Use by Day-Care Providers) distributed by the Internal Revenue Service (IRS).

Business Personal Property Taxes

The majority of states require you to pay business personal property tax not only at the time of purchase or transfer but on a yearly basis. The details regarding annual report filings, taxable items, and amount of taxes may vary according to state and county. At the same time, the IRS may regard the purchase of personal property for business as the basis for deductions if the purchased items are necessary. Check IRS Publication 334 for detailed information regarding the federal tax laws.

The personal use property converted to business use does not qualify for Section 179 allows you to deduct the costs of depreciable property in one year, instead of stretching the whole process in several years. However, it is subject to annual depreciation. The cost recovery basis for property converted from personal use to business use is the fair market value of the property at the time of conversion or the adjusted value of the property, whichever less. After determining the depreciable basis, figure out the annual depreciation amount for each piece of property you converted taking into account the depreciation method chosen, the depreciation convention, and the recovery period for each item.

Business Personal Property Tax Forms

Alabama

Form ADV-40, Business Personal Property Return

Form ADV-40S, Business Personal Property Return – Short Form

Arizona

DOR Form 82520, Arizona Business Property Statement (must be obtained from the office of the County Assessor of the county where the property is located)

Arkansas

ACD Commercial Personal Property Rendition Form

California

Form 571-L, Business Property Statement (e-filed through the EZNETPAY website)

Georgia

Form PT-50P, Tangible Personal Property Tax Return and Schedules

Indiana

State Form 11274 (Form 103-Short), Business Tangible Personal Property Return

State Form 11405 (Form 103-Long), Business Tangible Personal Property Assessment Return

State Form 50006 (Form 102), Farmer's Tangible Personal Property Assessment Return

State Form 10068 (Form 104), Business Tangible Personal Property Return

State Form 53854 (Form 103-SR), Single Return – Business Tangible Personal Property

State Form 53855 (Form 104-SR), Single Return – Business Tangible Personal Property

State Form 12980 (Form 106), Schedule of Adjustments to Business Tangible Personal Property Return

Maryland

Form 1, Annual Report & Business Personal Property Return

Form 2, Sole Proprietorship and General Partnerships – Business Personal Property Tax Return

Form 3, Domestic and Foreign Credit Unions – Annual Report

Form 5, Banks, Savings Banks, Savings & Loans and Trust Companies - Annual Report and Personal Property Return

Form 7, Rental Condominiums, Townhouses, Cottages, Rooms, etc. - Business Personal Property Tax Return

Form SD-1, Business Personal Property Return - Supplemental Details

Form 21, Transfer, Sale or Disposal of ALL Tangible Personal Property

Michigan

Form 2699 (L-4143), Statement of "Qualified Personal Property" by a "Qualified Business"

Oklahoma

Form OTC-901, Business Personal Property Rendition

South Carolina

Form PT-100, Business Personal Property Return

Texas

Form 50-144, Business Personal Property Rendition of Taxable Property