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Chapter 7

Chapter 7. Depreciation and Amortization. (1) Depreciation Systems. Depreciation (Code sec. 167) - pre 81 (post 81: units, old, amort) ACRS (168) -81-86 MACRS (168) - 87 -. (2) Basic Rules. Definition - reas allowance for exhaustion, wear & tear, obsolescence Allowed or allowable

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Chapter 7

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  1. Chapter 7 Depreciation and Amortization

  2. (1) Depreciation Systems • Depreciation (Code sec. 167) - pre 81 (post 81: units, old, amort) • ACRS (168) -81-86 • MACRS (168) - 87 -

  3. (2) Basic Rules • Definition - reas allowance for exhaustion, wear & tear, obsolescence • Allowed or allowable • Qualifying property - used in T or B or held for production of income • Basis - cost, conversions (lesser of AB or FMV) • Salvage value

  4. (3) ACRS • Personalty - recovery periods, method (150% DB), table; half year convention - year of disposition: none • Realty - method (175% DB), table, recovery periods - 15 year - 81 to 3/14/84 full month convention - 18 year 3/15/84 to 5/8/85 mid month convention - 19 year 5/8/85 to 12/31/86 mid month convention

  5. S/L election • special lives • table

  6. (4) MACRS • Personalty (200% DB) - recovery periods - different half year convention - mid quarter convention (personalty only, >40% placed in service last quarter) - S/L election for personalty: use recovery period • Realty - residential 27.5 year S/L - nonresidential 31.5 year S/L, 39 year S/L (effective 5/12/93) - mid month convention

  7. (5) Section 179 • Was 10,000 maximum (17,500 effective 1/1/93; new law 96); 97 - 18000; 98 - 18500; 99 - 19000; 00 - 20000; 01-02 - 24000; 03-05- 100,000; 06 - 25000 • Dollar limit: was 200,000; 400,000 (03-05) • business income limit

  8. (6) Autos and ListedProperty • (a) Predominantly business use (>50%) can use ACRS/MACRS • (b) Luxury auto limits • (c) % of business use versus personal use • (d) Not predominantly business use - S/L, ADS life, recapture

  9. (7) ADS (Alternative Depreciation System) • For AMT and E&P • Method - S/L, 150% DB for AMT • Recovery periods • Elections • New Law 1997 (below)

  10. Taxpayer Relief Act of 1997 - ADS Lives • ADS - Recovery periods are the same as macrs for amt - method may still differ (e.g., 150% DB v. 200% DB for personal property) • Effective for property - Placed in service after 12/31/98

  11. (8) Depletion • Cost • % depletion - Can be > cost in total (% of GI limited to 50% TI)

  12. (9) Amortization of Acquired intangibles • 15 yr S/L (effective 8/10/93) • 197 • e.g., goodwill

  13. Additional 1st Year Depreciation – JCWAA-’02 - 30% • Acquired 9/11/01 – 9/10/03 • Placed in Service before 1105 • New property

  14. Additional 1st Year Depreciation – JGTRRA – 03 - 50% • Acquired 5/6/03 – 12/31/04 • Placed in Service Before 1/1/05 • New Property

  15. Luxury Auto Limits – JCWAA ’02 & JTRRA ‘03 • 30%: 3060 + 4600 • 50% 3060 + 7650 • Still not apply gross vehicle weight >6000 lbs

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