Transcript
Depreciation & Amortization
2010 Updates
• Section 179– 2009 $250,000 ($800,000)– 2010 $250,000 ($800,000)– 2011 $25,000 ($200,000)
• Bonus Depreciation is eliminated
• Bonus Depreciation for Vehicles eliminated
• Qualified Leasehold Improvements
Choosing Correct Asset Life
• Repairs and Replacements capitalized if– Increase value of property– Increase usefulness– Lengthen Property’s Life– Adapt property to a new or different use
• De Minimus Rule
Conventions
• Half Year Convention – Treats all property as placed in service, or disposed of, at the midpoint of that tax year
• Mid-Quarter Convention – Treats all property as placed in service, or disposed of, at the mid-point of the quarter
• Mid-Month Convention – Treats all property as placed in service, or disposed of, at the mid-point of the month.
Choosing Correct Method
• Regular MACRS
• Straight Line over MACRS Recovery Period
• Straight Line over ADS recovery Period
Depreciation Methods
• Alternative Depreciation System (ADS)– Smallest Depreciation Deduction– Use straight line depreciation– Longer than MACRS– Once you choose ADS, you cannot switch
back.
Automobiles
Rules that apply to Automobiles
• Business Use Requirement – 50% and Above (MACRS)– 50% or Less (ADS), Does not Qualify for
Section 179– Must recapture depreciation if use falls below
50% in future year.
• Taxpayer cannot use standard mileage rate after using MACRS or Section 179
Rules that apply to Automobiles
• Passenger Automobiles– Four wheeled vehicles with an unloaded gross vehicle
weight of 6,000 pounds or less and manufactured primarily for use on public roads and highway
• Passenger Automobiles built on truck chassis– Trucks, Vans, SUV’s
• Qualified Non-personal Use Vehicles• Trucks and Vans with gross weight over 6,000
pounds
Rules that apply to Automobiles Depreciation Limits for Passenger Automobiles
Tax Year 2009 2010
First $10,960 *Bonus $3,060 Second 4,800 4,900 Third 2,850 2,950 Subsequent 1,775 1,775
Depreciation Limits for Trucks and Vans
Tax Year 2009 2010
First $11,160 *Bonus $3,160 Second 5,100 5,100 Third 3,050 3,050 Subsequent 1,875 1,875
Rules that apply to Automobiles
• Example: You purchased a new car in June 2010 for $31,000.
Rules that apply to Automobiles
• SUV’s, Trucks and Vans above 6,000 pounds– Not subject to Depreciation Limits– Section 179 Limit of $25,000.
Section 179• Allowed for depreciable, tangible, personal
property. (Not Real Property, Land Improvements)
• 2010 Maximum Deduction is $250,000 for all entities. (Individuals (MFJ), S Corp, Partnership and Corporation)
• Investment Limitation is $800,000 for 2009 and 2010. $200,000 for 2011.
• Dollar for Dollar decrease for amounts over limitation and loss of carry forward.
Section 179
• Total Cost that you can deduct is limited to taxable income from active conduct of any trade or business during year.
• This includes: salaries and wages, Section 1231 gains from sole proprietorship and income allocated from Partnership or S Corp with active participation.
Section 179
Example
• During 2009, the Allen Partnership places $828,000 of Section 179 property in service for use in its business. What is Allen’s maximum Section 179 deduction?
Section 179
Example
• In 2009, you purchased– $7,000 in Computer Equipment– $20,000 in Office Furniture– Both to be used 100 percent business– You have $25,000 of aggregate taxable
business income for the year.
Section 179
ExampleRobert is a 50% shareholder and full-time employee of an
S corporation. During 2009, the S corporation invests $324,000 in equipment qualifying for the Section 179 deduction. Robert also owns a sole proprietorship that constructs kitchen cabinets. The cabinet business qualifies as an active business for Robert. During 2008, he purchases $200,000 worth of equipment to use in his cabinet business. What is the maximum amount that Robert can deduct as a Section 179 expense for 2008?
Amortization
• Section 197 Intangibles- Acquired in connection with purchase of assets (15 years in month acquired)– Goodwill– Customer Base Intangibles– Patents, Copyrights– Supplier Based Intangibles– Covenant not to Compete
Amortization
• Intangibles separately acquired– Customer Based Intangibles – Amortize over
useful life– Patents – Amortized over useful life– Covenants – Amortized over Term– Supplier Based Intangibles – Amortized over
useful life
AmortizationExample: On January 1 of the current year,
Nisalke Company sells all assets used in its business to Layden Company. The assets and value are:
Real Estate (39 yrs) $10,000,000
Customer List (6 yrs) $800,000
Goodwill $500,000
Patent (10 yrs) $1,000,000
Covenant (3 yrs) $900,000
Total Purchase Price $13,200,000
Amortization
• Start Up Costs– Expenses incurred before business actually
begins– Taxpayers can elect to deduct $5,000 in first
year.– Phase out dollar for dollar when exceeds
$50,000.– Remaining balance is amortized over 15
years starting in month when business began.
Amortization
• You opened your new T-shirt business on July 1 of the current year. Your start-up expenses total $8,600.
Amortization
• Software Cost– Developed Internally
• Treat as current expenses like research and development• Capitalize and amortize over 36 months beginning with date
placed in service.
– Purchased• If Section 197 Intangible, then amortize over 15 years. • All others, capitalize and amortize over 36 months beginning
with date placed in service.
– Software bundled with Hardware• Treat as part of Hardware and depreciate
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