Presented by, - Internal Revenue ServicePresented by, Carlos C. Lopez, EA. Executive Director....
Transcript of Presented by, - Internal Revenue ServicePresented by, Carlos C. Lopez, EA. Executive Director....
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Depreciation
Presented by,Carlos C. Lopez, EA
Executive DirectorLatino Tax Professionals Association
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•Objectives of This Seminar•Overview of Depreciation•Allowed or Allowable•When Does Depreciation Begin?•What if You Sell the Asset?•What if You Sell Your Business?•Repair or Improvement?•Amortization
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•Income Tax Deduction•Recover Cost•Wear and Tear•Buildings•Machinery•Vehicles•Equipment•Non Tangibles
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•Must Own Property•Capital Improvements•Own or Lease•Income-Producing Activity•Useful Life over 1 Year•Placed in Service•Sold in Same Year•Methods of Depreciation
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Determine BasisCostSales TaxFreightInstallationPermanent ImprovementsAcquisition CostsDeduct Casualty and Theft
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Determine BasisExample:Purchase Price $160,000Land <15,000>Basis $145,000New Roof 7,500Escrow Costs 3,400Adjusted Basis $155,900
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Determine BasisExample:Adjusted Basis $155,900Remove Pool <10,000>Removal Expense 2,000New Adj. Basis $147,900
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ConventionsThe mid-month MM•Nonresidential Real Property•Residential Real Property•Railroad Grading•Tunnel Bore•Mid Point of Month•Placed in Service or Disposed of
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ConventionsThe Mid-Quarter MQ•>40% Total in Last Quarter•All Property Treated the Same•Mid Point of Quarter•Excludes MM Property•End of Year Tax Planning•Placed in Service or Disposed of
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ConventionsThe Half-Year HYNeither MM or MQCode Section 179Personal UseSpecial AllowancesPlaced in Service or Disposed of
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Depreciation Method
MACRS Recovery Methods
GDS 200% Declining Balance150% Declining BalanceStraight Line
ADS Straight Line
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Publication 946 page 40
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Examples of Class Life•3 years Heavy Trucks•5 years Computers•7 years Office Furniture•7 years Machinery•15 years Agricultural Structures•27.5 years Residential Rentals•39 years Commercial Rentals
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2012 Publication 946 page 99
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2012 Publication 946 page 75
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ExampleOffice Furniture$10,000Placed in Service 08/11/2013Business Use OnlyNo IRC 179No Special Depreciation Allowance
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ExampleMACRS ADS SLProperty class 7 YearDate placed in service 8/11/13Recovery period 7 YearMethod and convention SL/HYDepreciation rate 7.14%Deduction 1st year $7142nd – 7th year $1,4298th year $714
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•“Listed Property”•Automobiles•Computers
•Section 179 Expense•Must Be Eligible Property•2012 Limited to $500,000•2012 Total $2,000,000 purchased
•First Year “Bonus”
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Recapture Section 179Example$10,000 equipment 07/01/2010Expensed $10,000Sold in 7/01/2012 for $2,00010,000/7=1,429 x 2 = 2,85810,000 – 2,858 = $7,142 recapture
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Sale of AssetsBasis of AssetsRecapture DepreciationCapital GainsExchangesInvoluntary ConversionRetiredPersonal Use
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Sale of Business•Form 8594•Purchaser and Seller•Group of Assets•Trade or Business•Fair Market Value•Basis•File With Original Return
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Partial Form 8594
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Repair v Capital ImprovementIncrease Value?Make It More Useful?Lengthens Its Life?Example:Roof – partial or complete?Tractor Engine – Lengthens Its Life?Rental Appliances – More Useful?
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Allowed or Allowable•Allowed – Actual Deduction•Allowable – Entitled to Deduct•Reduce Basis by Allowable•Recapture as Ordinary Income•IRC 1245 and 1250•Form 3115
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Reporting DepreciationForm 4562Overview Publication 946A Car Publication 463ResidentialRental Property Publication 527Home Office Publication 587Farm Property 225, Farmer’s