Depreciation

Question 1

What are rules for depreciating real property (Section 1250)?

Answer 1

Recovery period either 27.5 years (residential rental) or 39 years (most others)
Land not depreciated
Salvage value ignored
S/L method used
Mid month convention used

Question 2

What are rules for depreciating personal property (Section 1245)?

Answer 2

Recovery period varies
Salvage value ignored
DDB method used
Half year convention used UNLESS >=40% assets purchased in final 3 months of year, then mid quarter convention

Question 3

What is the MACRS schedule for personal property?

Answer 3

3 years - small tools, software
5 years - autos, light trucks, copiers, computers, printers
7 years - equipment, furniture, desks

Question 4

What is the Section 179 deduction?

Answer 4

Can immediately expense tangible personal property rather than capitalize
Not allowed if creates net loss
Can be for new or used property
Must be purchased by unrelated party for business use
Expense amount is $500K, indexed for $10K increments starting in 2016
Reduced dollar for dollar for purchases in excess of $2M
Not available for purchases >$2.5M

Question 5

What are some exceptions to Section 179?

Answer 5

Heavy SUV limited to $25K expense amount

Off the shelf computer software can take Section 179 OR depreciate over 36 months S/L with no half year convention

Question 6

What is Bonus Depreciation?

Answer 6

Can expense 50% on tangible personal property
Only for new assets
Claimed after Section 179, before regular depreciation

Question 7

What is the Domestic Production Activities Deduction?

Answer 7

Deduction available to companies for qualified domestic production activities
DPAD is 9% the lessor of QPAI or taxable income
Limitations:
C Corps - taxable income
Sole proprietors, partnerships, S Corps, LLC - AGI
All - 50% of domestic employee W-2 wages

Question 8

What are qualified production activities for DPAD?

Answer 8

Manufacturing, producing, growing, and extracting tangible personal property, computer software, and sound recordings
Construction and substantial renovation of real property
Production of certain films
Certain engineering and architectural services

Question 9

What is Qualified Production Activities Income?

Answer 9

Excess of domestic production gross receipts (DPGR) over cost of sales allocated to DPGR and other expenses related to DPGR