Depreciation Flashcards
What depreciation method does Fed tax Law Use
MACRS
What are the three ways MACRS differs from GAAP
- its shorter
- the recovery period for new and used property is identical
- salvage values are ignored
Do you include salvage vale when calculating depreciation for tax
No - it is ignored
What is section 1250 for
Real property
land and building
depreciate only building
Recovery period for residential rental property
27.5 Years
Recovery period of any other type of property
39 Years building, business and investment
- no land
- salvage ignored
- S/L NOT MACRS
- mid month convention
Mid Month Convention
Only count 1/2 of the month that you put it into service
What is section 1245 property
This is tangible personal property - NOT realty
small tools, trucks, office furniture etc
What is the mid quarter convention
This says that if you bought over 40% of your personal property in last mont of the year you cANT take the 1/2 year convention.
You can only go mid quarter
Software uses what time
3 years - double declining
Autos and truck use what depreciation
5 years - double declining
Computer and printer use what depreciation
5 years - double declining
barges and vessels
10 years - double declining
Can you file an election to do S/L
Yes
What is DPAD
This is to encourage you to stay in US
Its on qualified production activities
What is Bonus depreciation
This is used after you take the 179 deduction
It is only in the first year
it is an additional 50% after you take the 179
How do you depreciate intangibles
Section 179
Amortize S/L
15 Years
Must be started in first month you or you lose it
Franchise - done over the life of the asset
What is a covenant not to compete
This is considered an intangible asset
It is a section 197 - acquired intangible asset
amortized over 15 years
Can you capitalize real estate taxes as part of a building for depreciation
No - taxes are expensed not capitalized
What are the conditions that must be met in order for a 179 property to be used
Must be new or used TANGIBLE depreciable property
Must be used in active trade or business
Must be purchased from an unrelated party
What are the limitations on DPAD
Sole proprietorships, S Corps and LLC all qualify for DPAD
Limited to AGI
When do you use mid month convention
If more than 40% of depreciable property is acquired during the 4th month - you apply the mid quarter convention -
This is even if you are using office furniture etc.
It is 1.5 Months
What items are captured in MACRS 5 year class
automobiles light trucks computers office machinery ( typewriter, calculators, copiers) peripheral equipment
What items are captured in MACRS 3 year class
small tools and software in a box
What items are captured in MACRS 7 year
Equipment, office furniture, desks,
When you are figuring out you depreciable base - what can you include?
YES - purchase price
YES - delivery charges
YES - installation Fees
YES - Sales Tax
When calculating DPAD - what are the rules
It is 9% of the lower of QPAI or 50% of W2 wages paid
Taxable income does not include NOL for the purpose of calculating the deduction
What is true about the useful life of a depreciated asset under federal law
Its generally depreciated faster than useful life
What can you apply DPAD to
manufacturing type activities
manufacturing producing growing extracting tangible person proerty computer software sound recording construction films engineering and architectural services
NO consulting services
Can you apply DPAD to consulting services
NO
