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Chapter 8

# Chapter 8 - 153 Chapter 8 Depreciation and Amortization...

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© 2010 CCH. All Rights Reserved. Chapter 8 153 Chapter 8 Depreciation and Amortization Highlights of 2010 Tax Changes The dollar limit for purposes of the immediate expensing of Section 179 property increased to \$500,000 in 2010 (from \$250,000 for 2009). The phase-out of this amount begins when more than \$2 million of Section 179 property is placed in service during 2010 (up from \$800,000 in 2009). Bonus f rst-year depreciation equal to 50% of the cost of the property is allowed on qualifying property placed in service during 2010 (same as in 2009). Depreciation deduction limits for most automobiles placed in service in 2010 are limited to \$3,060/\$11,060 in the f rst year; \$4,800 in the second year; \$2,850 in the third year; and \$1,775 in each subsequent year. These amounts are based on 100% business use. The indexed inclusion amounts for leased vehicles valued between \$35,000 and \$40,000 are included in the chapter. Teaching Suggestions Computing f rst-year depreciation for personal property placed in service during 2010 may involve several 1. separate calculations. Students need to be aware of the rules for each calculation and, more importantly, the order in which these calculations need to be made. First, if Section 179 property is placed in service during the year, the taxpayer must f rst determine the maximum Section 179 that is available. The statutory dollar limit (\$500,000 in 2010), placed in service limit (\$2 million), and taxable income limit all come into consideration in making the decision. Once the taxpayer determines the maximum Section 179 that is available, the decision must be made on how much to elect to expense in the f rst year. The maximum amount of Section 179 expense that can be elected is based on the dollar and placed-in-service limits. The maximum amount that can be deducted is based on the taxable income limitation. Second, the remainder of the taxpayer’s basis in the property (after subtracting out the amount elected) may be eligible for the 50% bonus depreciation. Third, after subtracting out bonus depreciation taken, the rest of the basis is depreciated over the appropriate recovery period under MACRS/ADS (whichever the taxpayer elects to use). The sum of the deductible Section 179 expense and the amount of f rst-year bonus depreciation plus MACRS/ADS comprise the taxpayer’s total f rst-year depreciation for property placed in service in 2010. Students who have used the double declining balance (DDB) method in a f nancial accounting course may 2. have dif f culty with multiplying the cost of the property by the percentages provided in the tax depreciation tables. Students will want to use the “adjusted basis” of the property (cost minus accumulated depreciation). Showing students how the percentages in the table were derived may help them understand (1) that the half-

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Chapter 8 - 153 Chapter 8 Depreciation and Amortization...

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