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Tax Final Notes

Tax Final Notes - Depreciation 1 Personal Property a...

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Depreciation 1. Personal Property a. Mid-Year Convention b. Mid-Quarter Convention if > 40% of assets are purchased during the 4 th quarter 2. Real Property a. Land – no depreciation b. Non-Residential Building – 39 year mid-month convention c. Residential Building – if 80% or greater used for residential, 27 ½ year mid-month convention 3. Section 179 Deduction – 250,000 phased out dollar-for-dollar over 800,000 4. Business and Personal Use Property a. If > 50% Business Use, multiply by percentage of business and then deduct Sec. 179 b. If < 50% Business Use, multiply by percentage of business but no Sec. 179 5. Automobiles a. If cost is < 15,000, use normal mid-year convention b. If cost is > 15,000 and vehicle weighs less than 6,000 lbs, use lesser of mid-year convention or IRS maximum luxury automobile depreciation schedule 6. Intangible Assets a. 180 month FULL-MONTH convention 7. Organizational Costs – must be incurred and paid for before end of first year a. $5,000 deduction phased out dollar-for-dollar for amount over $50,000 b. Remainder is amortized straight line per month over 180 months 8. Start Up Costs – incurred investigating the creation or acquisition of a trade or business a. $5,000 deduction phased out dollar-for-dollar for amount over $50,000 b. Remainder is amortized straight line per month over 180 months 9. Research and Experimentation a. Can be expensed immediately (or)
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b. Can be amortized straight-line over useful life (or) c. If no determinable useful life, can be amortized over any period ≥ 60 months d. If research leads to a patent, remaining research costs cease to be amortized and are added to the patent basis. 10. Self-Created Patents and Copyrights a. Patent – Straight-line over 17 years b. Copyright – Straight-line over 28 years 11. Natural Resources – can deduct the greater of the following on a year-by-year basis a. Cost Depletion = * Cost Basis Estimated Remaining Units Units Extracted b. Percentage Depletion – Gross income gained from resource extraction is multiplied by a fixed percentage based on the type of natural resource. Deduction is limited to 50% of net income obtained from resource extraction.
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