Chapter 6 - Depreciation

Question 1

Real Property (section 1250)

Answer 1

• non current asset used for business
• recovery period is:
  
  • 27.5 years - residential rental property
  • 39 years - most other buildings
    
    • land is not depreciated
    • salvage value is ignored
    • straight line method
    • mid month convention

Question 2

Tangible personal property (non realty) (section 1245)

Answer 2

• 3 years - small tools, software
• 5 years - automobiles, light trucks, copiers, computers & printers
• 7 years - most other personal property, equipment, office furniture, desks
• 10 years - barges, tugs, vessels, water transportation equipment
• 15 years - municipal wastewater treament plants and assets used in cement production
• 20 years - municipal sewer and farm buildings
• MACRS:
  
  • double declining (3,5,7,10 year)
  • swith to SL if its larger deduction
  • 150% declining for 15,20 year
• half year convention
• mid quarter
  
  • if acquire at least 40% of assets in the final 3 months, its is assumed that every asset purchased occured at the mid-point of that particular quarter in which it was purchased.

Question 3

Section 179 deduction

Answer 3

• immediatly expense new and used depreciable property
• based on 500K:
  
  • max is 500K and reduced by purchases over 2M.
    
    • not avail. for purchases over 2.5M.

Question 4

Domestic production activities deduction (DPAD)

Answer 4

• to encourage production within US.
• 9% of the lesser of QPAI or taxable income
  
  • QPAI: excess of domestic production gross receipts over the the total of cost of sales allocated to DPGR an other expenses, losses, or deductions properly allocable to DPGR.