Lecture 28 - The Most Taxing Questions or We Depreciate You

Property commercial including hotels and motels

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Unformatted text preview: g hotels and motels) (including Do 39 year straight-line Residential rental property (your landlord) Do 27.5 year straight-line Did You Say 27.5 Years?!! Time Line Conventions Time With cash flows remember we accumulated With events and put them at one point in time events Commonly we put all money events for a Commonly compounding period at the end of the period compounding Government also uses a convention about Government where to put expenses for depreciation purposes purposes Use the “Mid Year Convention” – ie the years Use purchases are treated as occurring exactly at the middle of the year middle Thus on 3 year property you get half a year in year 1, full Thus years in 2 and 3, and a half in year 4 years There are also some rules that allow some property There (usually 7 year and under to be set by Mid-Quarter Convention) The Problem of Unwieldy Math The 3, 5, 7, and 10 year property is 3, depreciated by 200% declining balance converting to straight line converting 15, and 20 year property is 150% 15, declining balance converting to straight line line Real Property is Straight Line Try that with Mid-Year and Mid-Quarter Try Conventions Conventions The IRS Solution The IRS considered a \$100 investment for IRS each type of property using mid-year, and 4 mid-quarter conventions where applicable applicable Calculated depreciation each year This just happens to be the % This depreciation allowable each year depreciation They then publish the numbers in a table They and spare you the need to understand how they got them they Example Example Consider depreciation on a new carpet put in an office Consider building building Carpeting cost \$10,000 Its 7 year Property The table says Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 14.29%*\$10,000 = \$1,429 24.49%*\$10,000 = \$2,449 17.49%*\$10,000 = \$1,749 12.49%*\$10,000 = \$1,249 8.93%*\$10,000 = \$893 8.93%*\$10,000 = \$893 8.93%*\$10,000 = \$893 4.46%*\$10,000 = \$446...
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