REG_3_05

Take the purchase price (do not subtract depreciation) and multiply it by the MACRS factor for the year and category of that asset. (see R3-52 and R3-53 for examples)

• False
• Only the original purchase price + improvements

Residential Rental Property (apartments and duplex rentals)

Nonresidential real property (office buildings and warehouses)

• The half-year convention unless
• >40% depreciable personal property is placed in service in the last quarter of the year and then mid-quarter convention must be used

• Use mid-month calculation
• Calculate the depreciation rate for all but the first year: 1/39 yrs = 0.02564
• Determine the number of months of service for the 1st year, not including the month purchased (ex=if purchased in April, it would be May-Dec = 8 full months)
• The month of purchase is considered a half-month. 8 full months + ½ month = 8.5 months
• Determine the depreciation rate for the first year: 8.5 months/12 months =0.07083 * purchase price

• Any taxpayer with depreciable property used in a trade or business may deduct up to $510,000 as expense (instead of capitalizing) for new or used property purchased from a non-related party EXCEPT
• This amount is reduced dollar-for-dollar for purchases >$2,030,000
• The deduction cannot result in a net loss or if a net loss exists (use MACRS instead)
• The limit on the expense for an SUV is $25,000

• Section 179 Expense
• Bonus depreciation
• MACRS depreciation
• They may all 3 be used in the same year and in this order.

• For property with a recovery period of 20 years or less (that eliminates real property), and if a new purchase by the original owner (used property doesn’t count)
• If purchased in 2015, 2016, 2017 the bonus is 50% of the (purchase price – 179 deduction)
• If purchased in 2018 the bonus will be 40%
• If purchased in 2019 the bonus will be 30%

• Cost
• Percentage

• Determine a cost / unit (a unit can be a barrel, a ton, per tree, etc): total costs / total est units from the initial resource
• Calculate the amount of depletion: (cost / unit) * number of units sold

• For intangibles with indefinite lives: GAAP only allows impairment test
• For intangibles with finite lives: GAAP allows amortization over the life of the asset, plus the impairment test
• For taxes: all intangibles may be amortized using straight-line over 15 years starting with the month of acquisition

• Business organization start-up costs: expense the first $5,000, amortize the remainder over 180 months
• Research expenses: expense when incurred or amortize over 60 months

You get only a half-year's of depreciation in the year you buy it (even if you bought it on Jan 1), and a half year in the year you sell it.

Because the first year is a half-year convention (doesn’t matter when you bought it during the year, the IRS assumes you put it into service in the mid-point of the year) so you only get half of the depreciation

Mid-quarter convention

The government determines a percentage to be used based on the mineral you are depleting. You use that percentage * income to calculation depletion. It can be no more than 50% of income.

• Special tools
• Racehorses 2+ yrs old
• Other horses 12+ yrs old

• Automobiles
• Light trucks
• Computers
• Copiers

• Office furniture & fixtures
• Equipment
• Railroad track

• Boats
• Water transportation equipment

• Sewage treatment plans
• Telephone distribution plants
• Restaurant and retail property
• Voice / Data exchange equipment

Sewer pipes

• False
• Because land is not depreciable