Cap. & Depreciation
- Expenses w/Value in Future
- Helps prod. income & transform asset 2 another
- X'ing Issue of Deductibility
- Types of Assets
- Wasting asset loses value so deduct depreciation
over asset's life
- Nonwasting asset not wear out like land so basis
act as deduction
- Det'ing Capital Expense
- Any expenditure w/subst'l value beyond taxable
- Still arg. over subst'l improvement v. repair
- Capital Expense v. Deductible Expense
- If recurring expense, treat as ord. expense &
deduct b/c effect is same
- Repair 4 ord. & busi. operation 2 protect
- Costs of self prod'ed assets § 263A
- Start up expenditures depreciated / amortized
over 5 yrs. § 195
- Investig. the creation / acq. of trade / busi.
- Create trade / busi. / activity 4 profit
- Long term improvements extending life of bldg
/ cap. asset
- Depreciable Basis & Salvage Value
- Useful Life of Asset
- Mech. 2 Calc. Depreciation
- Based on X of Asset's Life
- Straight Line / Slow Method
- Depreciate each yr. an equal amt. until end of
- Double Declining Balance (DB) / Faster Method
- Doubles % of straight line depreciation &
subtract depreciable basis yr'ly
- Switch 2 straight line when that yields larger
deduction 4 declined basis
- Acct'ing Sys.
- When 2 Begin Depreciate
- When asset 1st used 2 help trade / busi.
- Tangible Prop. § 168
- Apply As Long As Wasting Asset
- Applic. Depreciation Method
- DB of 200% switching 2 straight line when that's
larger § 168)b)1
- DB of 150% 4 15 & 20 yr. prop.
- Shortcut in charts 2 multiply initial basis by
% each yr. (handout 19)
- Can elect straight line / 150% DB 4 class which
is irrevocable § 168)b)5
- Applic. Recov. Per. / Classif. of Prop. §
- Class of prop. by approx. class life shown in
- Can elect actual class life § 168)g
- Spec. prop. like auto given set life by §
- Applic. Convention
- Midyr. convention so all prop. serv'ed during
midpt § 168)d)1
- Midquarter convention if subst'l prop. / 40%
or more of agg. basis in serv. during last 3 mo. of taxable yr.
- Salvage Value 0 § 168)b)4
- Depreciable basis is prop's basis
- Real Prop. Excl'ing Land § 168
- Depreciation Method
- Straight line 4 nonres'al & res'al bldgs
- Applic . Recov. Per.
- Res'al rental if 80% / more of gross is rental
income from dwelling § 168)e)2
- Res. rental has 27.5 yr.
- Nonres. real prop. has 39 yrs.
- Applic. Convention
- Mid-month convention § 168)d)2
- Intangible Prop. & Amortization
- Non X Based § 167
- Income forecast using % of rev. / total income
- Only used 4 movies, tv, records, etc.
- Unit of prod. using % of prod. / total prod.
- Intangible & Good Will § 197
- Amortized over 15 yrs.
- Amortizable goods listed § 197)d
- Can't amortized self created things § 197)c)2
- Not incl.
- Sports franchise if get all rts § 197)e)6
- Int. in film / similar 4 any K 4 less than 15
yrs. then K rt. amortized by § 167
- Spec. Depreciation Rules
- Limit Depreciation
- Luxury autos limited in depreciating cert. amt.
only each yr. § 280F)a
- Busi. use less than 50% of § 280F)d)4 prop's,
deduct by § 168)g / straight line depreciation § 280F)b
- Spec. Election 4 Small Busi. § 179
- Can deduct instead of depreciate if have less
than $200k prop's
- Deduct only up 2 $17,500 of basis
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Law School Notes
December 8, 1997
Ms. Haeji Hong