Tag Archive for Depreciation

Basis and Depreciation: A Review for Tax Professionals – Part IV

Now that we have reviewed the items necessary to have in hand before you can start to calculate an asset’s depreciation, let’s review which of the uses of property would give rise to needing depreciation in the first place.

There can be some confusion between personal type property (real or personal) and personal-use property. Since, in most cases, personal-use property is not depreciated as it is used for personal and not business reasons, when we refer to “personal property” while talking about depreciation we are talking about personal type property that is business use.

For the most part, depreciation is taken on business use property. As mentioned above, Read More

Written by | Posted in Individual • Real Estate

Tax Provisions Not Extended

Is it real this time? –

In one of the most visible expressions of confusion in tax policy out of Washington D.C. is the treatment of a short list of tax laws that have been repeatedly extended only to expire only to be extended once again. These laws expire on midnight December 31st, 2013 unless… once again… the laws are extended.

• Teacher $250 deduction for qualified classroom expenses

• Deduction for state and local general sales taxes (in place of state income tax deduction)

• Deductibility of home mortgage insurance premiums Read More

Written by | Posted in Tax Provision/Tax Reporting

Sales of Business Assets

Business assets are not capital assets but the sale my result in long-term capital gain if the asset has been held for more than one year. Under Code Section 1231, the net gain from sale of all Section 1231 assets is long-term capital gain, but there are two are two exceptions for depreciable property. (1) For personal property, under Section 1245, gain is ordinary income to the extent of any depreciation allowed or allowable (depreciation recapture). Allowable means that if the taxpayer could have taken depreciation on the asset but did not do so, then this amount must reduce the basis of the asset and is considered as ordinary income when the property is sold for a gain. (2) Under Section 1250, real property depreciated under an accelerated method is also treated as ordinary income. The amount of recapture depends on when the asset was placed in service and what depreciation method Read More

Written by | Posted in Property Tax • Sales/Use Tax • Tax Provision/Tax Reporting

Year-End Planning – Depreciation

1040 change penThere are many aspects to year-end planning; one of them for businesses is your ability to make choices when it comes to depreciation.  Equipment and machinery purchases can be a big part of a business’s budget, and they can make a big difference when it comes to taxable income.

A piece of equipment that is placed into service before the end of the year will have depreciation expense for the year.  In 2013, new machinery and equipment is eligible for 50% bonus depreciation, meaning 50% can be taken in the very first year.  The bonus depreciation rules are scheduled to lapse, meaning 2013 is the last time this special depreciation perk will be available.

Section 179 is the other big depreciation perk and that allows you to claim up to $500,000 of depreciation on new or used equipment placed in service by the end of the year.  In 2014, the Section 179 limitation is scheduled to go back to $139,000, so again 2013 is the last time the expanded Section 179 is going to be around.  It’s possible they will extend either the bonus depreciation or expanded Section 179, but at this point it doesn’t appear to be likely.

Using depreciation methods to adjust your business’s taxable income is one of the easiest things to do.  If your taxable income is right where you want it, maybe you defer the purchase of equipment into next year or you elect not to claim any Section 179.  Conversely, if your taxable income is high and you want to avoid the new higher tax rates, claiming bonus depreciation and Section 179 can greatly reduce your taxable income.

In accordance with Circular 230 Disclosure

Written by | Posted in Individual • Tax Tips
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