Depreciation SG.pdf

# Depreciation SG.pdf - SECTION XV DEPRECIATION SUGGESTED...

• 12

This preview shows pages 1–4. Sign up to view the full content.

SECTION XV DEPRECIATION SUGGESTED ANALYSIS 1. On January 30, 20X1 Jim, a calendar year taxpayer, purchased new depreciable equipment for \$700,000 for his business. The equipment has a "class life" of 7 years but Jim hopes to use the machine for 10 years. At the end of the 10 years, Jim expects the salvage value to be \$10,000. Jim’s aggregate amount of taxable income from his business is \$550,000, before any deductions related to this purchase. Compute Jim's deduction for each year allowable assuming Jim elects for §§168(b)(5), 168(k) and 179 not to apply. As of this writing, Congress has not taken action to extend the depreciation limits under § 179 or to reinstate § 168(k) bonus depreciation for 2015. These problems will be analyzed two ways: first as if 20X1 was 2014 and again as if 20X1 was 2015. If 20X1 is 2014 Under these assumptions, the basic rules of § 168 will apply. Since this is tangible personal property, the double declining balance method applies. § 168(b)(1)(A). Since the class life is 7 years, it is five year property § 168(e)(1) which has a five year applicable recovery period. § 168(c). The applicable convention is the half-year convention. § 168(d) The depreciable basis is \$700,000 since the salvage value is considered to be zero. § 168(b)(4). 20X1: He can claim first year regular depreciation of \$140,000 (\$700,000 ÷ 5 years x 200% x 1/2 year convention = \$140,000). 20X2 depreciation is \$224,000 (560,000 ÷ 5 years x 200% = \$224,000) 20X3 depreciation is \$134,400 (336,000 ÷ 5 years x 200% = 134,400) 20X4 depreciation is \$80,640 (201,600 ÷ 5 years x 200% = \$80,640). (Note that we do not switch to straight line here because straight line is exactly the same as DDB and we only switch when straight line is greater. Straight line would be computed by dividing the remaining basis (\$201,600) by the remaining useful life (2.5).)

This preview has intentionally blurred sections. Sign up to view the full version.

income is \$550,000. However, before we can apply this limitation, we must

This preview has intentionally blurred sections. Sign up to view the full version.

This is the end of the preview. Sign up to access the rest of the document.
• Fall '10
• West

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern