MARCS Flashcards
Length for MACRS personal for items depreciation
We don’t mixed PP with REP - Keep them separated
3 yrs - Special tools and certian racehorses
5 yrs - cars, light trucks, computers and copiers
7 yrs - office furniture, fixtures and equipment
10 yrs - boats and water transportation
15 yrs - qualified improvements of nonresidential buildings and certain improvements made to the land.
20 yrs - Certain farm buildings and municipal swers
27.5 yrs- residential real property
39 yrs - nonresidential real property
3, 5, 7 & 10 years MACRS property placed in service after 01/01/1987 is computed using the 200% declining method
15 & 120 computed using 150%
Remember that if I have a net loss before section 179 I don’t deduct because i cannot use section 179 to create a los or if there is a NOL
MARCS conversation - HALF YEAR
ASSUMES THAT ALL PROPERTY PLACED IN SERVICE OR DISPOSED OF DURING A TAX YEAR IS PLACED IN SERVICE OR DISPOSSED OF AT THE MIDPOINT OF THE YEAR. THIS MEANS THAT I THE FIRST YEAR YOU CAN ONLY DEDUCT HALF THE YEARS DEPRECIATION
Personal property only (not property) is used unless more than 40% of depreciable PP is placed in service n the last quarter of the year. If placed last quarter used mid-quarter
Example: If two PP purchased, one in Aug and another in Nov multiply value * 40% - If total is less than the amount purchased for the last item I have to use the mid quarter.
Building improvement use Half year convention
Office building : Land is not depreciate
Ignore salvage value
39 yrs straight line (less wear & tear)
Mid-month conversation is required (1/2 month for
the 1st month and last month)
MARCS question
Alpha Co. purchased and placed in service $100,000 of computer equipment on January 1, Year 1, and disposed of the computer equipment on March 31, Year 3. No other depreciable assets were placed in service in Year 1. Alpha uses MACRS depreciation to recover the cost of the assets. The MACRS rates for property with a five-year recovery period and a seven-year recovery period are as follows:
What is the amount of of Alpha’s MACRS depreciation in Year 3?
Computer equipment is five-year property. The property was disposed of during Year 3, so the half-year convention applies. The Year 3, five-year rate of 19.2 percent is for a full year of depreciation, so the rate must be multiplied by one-half for the half-year convention: 19.2% × 1/2 = 9.6% × $100,000 = $9,600.
MARCS convention time - Mid-month (Do not use mid-quatre)
Real Estate always (Real Property)
Use SLD
–Based number of months property was in service - Only count One half month is taken when placed in service and one half month is taken when disposed.
Section 179 rules:
*MUST BE BOUGHT FROM AN UNLREADED PARTY
*MUST BE USED MORE THAN 50% FOR BUS PURPOSES
*MUST BE TANGELIBE
*SOFTWARE THAT IS ON THE SHELF FOR ANYONE TO BUY CAN BE INCLUDED, BUT SOFTWRE THAT IS DEVELOPED SPECIFICALLY FOR THE TAXPAYERS BUS DOES NOT QUALIFY
$1,220,000 maximum, but reduce dollar for dollar if excessed $3,050,000 and CANNOT bus income
Cannot use to create a loss can just get to 0
If the purchase total exceeds the phase out total it reduces the section 179 to 0
Does not apply to land
*** Example. Office building cost $3,300,000 and taxable income is $750,000 I can only deduct $750,000 because if I use the rules of $3,300,000 - $3,050,000 = $250,000 - $1220,000 = $970,000 - This will create a loss and we cannot create a loss
Buildings and Section 179 rules:
Buildings don’t qualify for section 179, but improvements to the interior to a nonresidential building after purchased
Like a fire alarm system qualifies
Alarms for residential building don’t qualify for improvements
MARCS convention time - Mid-quarter (NOT RE ONLY PP)
THE % IS ALREADY DISCOUNTED ON THE TABLE WITH YEARS AND %PROVIDED SO I DON’T HAVE TO TAKE IN ACCOUNT HALF MONTHS
REMEMBER MID-QUARTER CONVENTION (OCT,NOV, DEC) IS USED INSTEAD OF HALF YEAR WHEN MORE THAN 40% OF THE VALUE (RE NOT INCLUDED IS PLACED IN SERVCE IN THE LAST QURTER OF THE TAXEPAYERS FISCAL YEAR
