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by AB-Answerbot on March 8th, 2007

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I purchased a computer last year to do online day trading part-time from home for additional income. Can I deduct or depreciate the cost of the computer or internet connection from my investment income?

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  • by AB-Answerbot on March 8th, 2007

    AB-Answerbot

    You may deduct investment expenses (other than interest expenses) as miscellaneous itemized deductions on Form 1040, Schedule A (PDF), line 22, Itemized Deductions. This would include depreciation on the portion of your computer used for investment purposes, and the portion of your internet access charges used for investment purposes.

    The acquisition cost of a computer purchased for investment use can be depreciated over a 5-year recovery period. To elect to recover (expense) all or part of the acquisition cost of the computer in the first year under section 179, the property must be used more than 50% for business use (as opposed to investment use), and meet the other requirements for expensing under section 179. One of those section 179 requirements is that the total cost of qualifying property you can deduct after you apply the dollar limit is limited to the taxable income from the active conduct of any trade or business during the year. See Publication 946, How to Depreciate Property for additional information on the section 179 deduction.

    Because these deductions (described in the 1st paragraph) are for investment expenses rather than for business expenses, the sum of these deduction amounts and other expense and deduction amounts included in Job Expenses and Certain Miscellaneous Deductions of Form 1040, Schedule A must be reduced by 2% of your adjusted gross income. Use Form 4562 (PDF), Depreciation and Amortization, to compute the depreciation for the portion of your computer used for investment purposes and Form 1040, Schedule A to determine your reduced total amount under Job Expenses and Certain Miscellaneous Deductions.

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