Section 6: Depreciation

Question 1

Real Property (Section 1250)

Answer 1

• 27.5 Yrs - Resiential rental property
• 39 Yrs. - Most other buildings
  
  • Land is not depreciated
  • Salvage value of buidling is ignored
  • Straight line is used (MACRS)
  • Mid-month convention
    
    • only depreciate real prop for 1/2 month placed in service

Question 2

Tangible Personal Property (Section 1245)

Answer 2

• 3 years - small tools, software
• 5 years - cars, copiers, computers , and printers
• 7 years - most other personal prop, equip, furniture
• MARCS
  
  • Double Declining Balance (200% DB - 3, 5, 7, 10 yr property)
  • 150% DB for 15 and 20 yr property
• Salvage is ignored
• Half yr convention
• Mid quarter convention - if 40% or more of property acquired in last quarter

Question 3

Section 179 Depreciation Election

Answer 3

• Can immediately expense depreciatable biz property rather than capitalize it
• Not allowed if net loss exists or it would create net loss
• Max expense is $500k
  
  • Reduced dollar for dollar over $2,000k

Question 4

Bonus Depreciation

Answer 4

• For qualified NEW assets (1245 property with life of 20 yrs or less)
• 50% bonus depreciation after reduction for any section 179 elections

Question 5

Intangibles

Answer 5

• Straight line
  
  • 15 yrs - most intangibles (including Goodwill)
  • 15 yrs (180 months) ($5k immediately) - organizational expenses
  • Life of contract - Franchises
  • Must begin amortization in month of acquistion

Question 6

Depletion - Cost Method

Answer 6

(Adj basis/ est. recoverable units) x units sold = depletion expense/yr

Question 7

Depletion - Percentage Method

Answer 7

Statory percentage x gross income