Reg Sec 6 Flashcards
Tangible personal property
3 years-small tools, software
5 years-Automobiles, light trucks, copiers, computers and printers
7 years-most other personal property, equipment, office furniture, desk
10 years-Barges, tugs, vessels, water transportation equipment
15 years-Municipal wastewater treatment plants and assets used in cement production
20 years-Municipal sewer and farm buildings
(MACRS)
Salvage values are ignored
Real property- Recovery period is
27.5 Rental property
39 years business
Straight line is used
Mid-month convention
Only depreciate real property for 1/2 the month when placed into service and 1/2 in month of disposal.
Example of straight line and mid-month
Purchase office building for 500,000 on 11/1/x1 including land valued at 32,000. So 468,000(500-32) is recovered over 39 or 12,000(468/39) per year. The property is treated as been purchased in middle of year so 1 1/2 months. 12,000 per year/ 12 months= 1,000 per month x 1 1/2 = MARCS OF 1,500
(MARCS)
- Half-year
- Mid-quarter
-Half year for personal property (Double Declining Bal 200% 3,4,7,10 years real property)
Example: purchase office furniture for 490 on 2/1/x1 with 7 years life. Assuming SL is 1/7 of cost per year, the client will use 2/7 DDB. in 20x1 the half-year convention is applied of 490 x 2/7 x 1/2=70. Remaining basis 420(490-70) in 20x2 420 x 2/7=120
-Mid-quarter- If acquire at least 40% of its assets in the final 3 months of the year its assumed to be mid-point of the particular quarter when purchased. Example
assume a client purchased a tool for 300 an the only purchased acquired more than 40% as a result the small tool will be treated as purchased in the middle of Nov. and only 1 1/2 of depr. my be claimed in year 1 300 x 2/3(DDB) x 1 1/2(1/8) =25
Section 179 Deduction
-Property must be acquired by purchase from an unrelated party for use in an Active trade or business. It is 25,000 or 500,000 depending on congress up to 2,000,000 dollar for dollar not available of purshase exceed 2,500,000.
Example: if 500,000 and purchase is 30,000 then the whole 30,000 is elected. if 580,000 is the purchase then 500,000 is election leaving a remaining bal of 80,000 to depr. if 2,300,000 is the purchase then 200,000 is elected (not to exceed 2,000,000, 300,000-500,000 max is 200,000 is elected.
