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Unformatted text preview: Outline 5 Depreciation, Cost Recovery, Amortization March 19, 2011 Reading assignment: * NOLO Chapter 5 pages 85 to 136; Chapter 3 * NOLO Chapter 8 pages 198 230; and Chapter 9 pages 246 to 268 Textbook: Chapter 8 Read entire chapter except: Skip Section 8.5 and Section 8.9 regarding depletion; Skip ADS Chapter 8 pages (19 middle to 21 middle) Chapter 9 Section 9.3 Commuting expenses Section 9.4 Travel expenses Chapter 6 pages 16 middle to 18 top (Investigation of a business) *Read Nolo Press first since it is easier to understand. Chapter 8 Problems: 31, 32, 33, 34, 35, 36, 37, 38, 39, 40, 45, 46, 47, 48, 49, 50, 51, 53, 58, 59, Chapter 9 Problems: 6, 31, 32, 33 Chapter 6: Problems: 46 and 47 TAX LAW CHANGES FOR 2010 and 2011 (Not in textbook) 179 expanded: For tax years 2010 and 2011, expense limit is increased to $500,000 and phaseout threshold increased to $2 million; 179 for (some) real estate: For tax years beginning in 2010 and 2011, taxpayers can elect to treat certain real estate as 179-eligible. Qualifying real estate includes: Qualified leasehold improvements; Qualified restaurant property; and Qualified retail improvement property. Bonus depreciation rates: January 1, 2008-Sept 8, 2010 50% September 9, 2010- Dec. 31, 2011 100% January 1, 2012 Dec 31, 2012 50% Luxury auto depreciation increased: As a result of the extension of bonus depreciation, first-year depreciation of automobiles is bumped up by $8,000; Deduction for start-up expenditures increased: Under IRC 195, increased from $5,000 to $10,000 for taxable year 2010 (only); Cell phones removed from listed property: Permanent and effective beginning January 1, 2010. 1 Start-up expenses: For 2010 only, amount of deductible start-up expenses are increased from $5000 to $10,000 and the threshold amount before reducing this deduction increases from $50,000 to $60,000 Cost Recovery QUESTION: Why are you permitted to depreciate a car used in your business? QUESTION: Does the same principal apply to real estate that is increasing in value? Recovery of the cost of business or income-producing assets is through: o Cost recovery or depreciation: tangible assets o Amortization: intangible assets o Depletion: natural resources Allowed vs. Allowable PROBLEM Chapter 8 problem 31 o Basis in an asset is reduced by the amount of cost recovery that is allowed but not less than the allowable amount. Allowed is the cost recovery actually taken. Allowable is the amount that could have been taken. Depreciation vs. Cost Recovery Allowances o Post -1986 MACRS (modified accelerated cost recovery system) o Generally use GDS General depreciation system o May also elect ADS alternate depreciation system longer lives and straight line QUESTION: What are the four possible uses of property?...
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