Income Tax Planning Lesson 4 - Depreciation, Amortization, and Depletion

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Can personal use items be depreciated?
No
Can items used for both business and personal use be depreciated?
Yes, but only the % used for business
Can inventory be depreciated?
No
Can the cost of land be depreciated?
No, unless they are "land preparation costs"
What are the 3 methods of depreciation?
Straight Line
Accelerated Cost Recovery System (ended 1986)
Modified Accelerated Cost Recovery System (MACRS)
How do you calculate straight line depreciation?
(Basis - Salvage Value) / Useful Life
Can Section 197 intangibles like patents, software, and copyrights be depreciated?
No
Can non-Section 197 intangibles like patents, software, and copyrights be depreciated?
Yes (Straight line method)
What 2 types of systems does MACRS use?
General Depreciation
Alternative Depreciation
What types of property use the alternative depreciation system for MACRS?
Less than 50% business use
Use mostly outside US
Financed by tax-exempt bonds
What types of property are depreciated over 3 years in the MACRS general system?
Tractors
Horses
Rent-to-own Property
What types of property are depreciated over 5 years in the MACRS general system?
Autos
Computers
Office equipment
What types of property are depreciated over 7 years in the MACRS general system?
Office furniture and equipment
(Desks, files, safes)
What types of property are depreciated over 27.5 years in the MACRS general system?
Rental homes
What types of property are depreciated over 39 years in the MACRS general system?
Office buildings/Sores/Warehouses
(section 1250 property)
If you place residential or non-residential property into service, when do you start the depreciation?
The midpoint of that month
Section 179 deduction is the lesser of what?
Property Placed in Service
Taxable Income
$510k
What is amortization used for?
Intangible assets
What are some examples of amortizable assets?
Goodwill
Trademarks
Covenants not to Compete
Copyrights and Patents used in business
What is the schedule amortized assets follow?
15 year straight line
What convention should non-real property placed into service use?
Half year
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