Depreciation deductions for short tax years: cutting through the complexity

Article Abstract:

The Tax Reform Act of 1986 altered the way taxpayers should calculate depreciation. Individuals who filed returns before the IRS issued Rev Proc 89-15 should file amended returns. Those not filing amended returns should included depreciation deductions on subsequent tax returns. Rev Proc 89-15 instructs taxpayers on how to calculate depreciation for: property in a taxable year of less than 12 months; property sold or disposed of before the recovery period ends; and recovery periods that include short taxable years. Half-year conventions, including depreciation reduction, occur in taxable years lasting less than 12 months. Mid-quarter conventions are used when property is placed in the final three months of taxable years. Other considerations include: subsequent short taxable years; previously filed returns; and before end of recovery period dispositions.

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Depreciation rules require planning for asset dispositions

Article Abstract:

Proposed Regulations (PS-55-89, 8/27/92) allows the grouping of depreciable assets into general property classes in accordance withSection 168(i)(4). In addition, the Proposed Regulations enable businesses thatexercise care in structuring asset classes to obtain more advantageous treatment upon disposition of assets. Under Prop Reg 1.168(i)-1(c)(1), the onlyassets that can be grouped into one or more general asset accounts are those governed by general depreciation system of Section 168(a) and those subject to the alternative depreciation system of Section 168(g). Special grouping regulations are contained in Prop Reg 1.168-1(c)(2)(ii). Provisions governing the recognition of a gain or loss on the disposition of a n asset from a general asset account are expressed in Prop Reg 1.168(i)-1(e)(2)(i).

Laws, regulations and rules, Assets (Accounting)

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Proper classification of depreciable property produces large tax savings

Article Abstract:

Taxpayers classifying property purchases as personal rather than real can realize significant tax savings. The Tax Reform Act of 1986 requires taxpayers to recover property costs over longer periods. For example, the recovery period for tangible property is normally seven years while for residential property it is 27.5 years and non-residential real estate 31.5 years. Tangible property is: contained in or attached to buildings; movable; or machinery. The property's movability, means and intended length of attachment, design, and load-bearing capacity are considered in determining its inherent permanency as well.

Methods, Personal property taxes

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