27183886
Description
Mind Map by Megan Heflin, updated more than 1 year ago
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Created by Megan Heflin
over 3 years ago
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Property Acquisition and Cost Recovery
- Depreciation
- Method of deducting the cost of tangible personal and real property (other than land) over time
- Method of deducting the cost of tangible personal and real property (other than land) over time
- Amortization
- Method of deducting the cost of intangible assets over time
- Method of deducting the cost of intangible assets over time
- Depletion
- Method of deducting the cost of natural resources over time
- Method of deducting the cost of natural resources over time
- Cost Basis
- An asset's cost basis includes all costs needed to purchase the asset, prepare it for use, and begin using it
- Cost basis is usually the same for book and tax purposes
- Special basis rules apply when personal-use assets are converted to business use and when assets are acquired through tax-deferred transactions, gifts, or inheritances
- An asset's cost basis includes all costs needed to purchase the asset, prepare it for use, and begin using it
- Tax Depreciation
- To depreciate an asset, a business must determine original basis, depreciation method, recovery period, and depreciation convention
- To depreciate an asset, a business must determine original basis, depreciation method, recovery period, and depreciation convention
- Half-Year Convention
- One-half of a year's depreciation is allowed in the first and the last year of an asset's life
- The IRS depreciation tables automatically account for the half-year convention in the acquisition year
- If an asset is disposed of before it is fully depreciated, only one-half of the table's applicable depreciation percentage is allowed in the year of the disposition
- One-half of a year's depreciation is allowed in the first and the last year of an asset's life
- Mid-Quarter Convention
- The mid-quarter convention is required when more than 40% of personal property is placed in service during the fourth quarter of the tax year
- Each quarter has its own depreciation table. Once the mid-quarter convention applies, the taxpayer must continue to use it over the assets' entire recovery period
- If an asset is disposed of before it is fully depreciated, use the formula given to determine the allowable depreciation in the year of disposition
- The mid-quarter convention is required when more than 40% of personal property is placed in service during the fourth quarter of the tax year
- Real Property Depreciation
- Depreciated using the straight-line method
- Uses the mid-month convention
- Residential property has a recovery period of 27.5 years
- Nonresidential property placed in service on of after May 13, 1993 has a life of 39 years
- Nonresidential property placed in service after December 31 1986 but before May 13, 1993, has a period of 31.5 years
- Depreciated using the straight-line method
- Listed Property
- When an asset is used for both personal and business use, calculate the business-use percentage
- If the business-use percentage is above 50%, the allowable depreciation is limited to the business-use percentage
- If a listed property's business-use percentage ever falls to or below 50%, depreciation for all previous years is retroactively restated using the MACRS straight-line method
- When an asset is used for both personal and business use, calculate the business-use percentage
- Organizational Expenditures and Start-Up Costs
- Taxpayers may immediately expense up to $5000 of organizational expenditures and $5,000 of start-up costs
- The immediate expense rule has a dollar-for-dollar phase-out that begins at $50,000 for organizational expenditures and for start-up costs. Thus, when organizational expenditures or start-up costs exceed $55,000 there is no immediate expensing.
- Taxpayers may immediately expense up to $5000 of organizational expenditures and $5,000 of start-up costs
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