Examples Using the Depreciation Tables

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来自 University of Illinois at Urbana-Champaign 的课程

Federal Taxation II: Property Transactions of Business Owners and Shareholders

23 个评分

University of Illinois at Urbana-Champaign

Federal Taxation II: Property Transactions of Business Owners and Shareholders

23 个评分

课程 2（共 5 门，Specialization U.S. Federal Taxation）

This course examines the U.S. federal tax system as it relates to property transactions of business owners and shareholders. Topics include cost recovery, such as depreciation, amortization, and depletion; calculation of realized versus recognized gains and losses; evaluation of the potential tax effects of nontaxable exchanges; and the combining, or netting, gains and losses that are different in nature. Assignments facilitate self-discovery of knowledge and development of a variety of professional skills.

从本节课中

Module 1 Cost Recovery: Depreciation

In this module, you will be introduced to concepts of cost recovery used by U.S. Taxpayers. The nature of property will be discussed designating the difference between realty and personalty. The Modified Accelerated Cost Recovery System (MACRS) will be explained along with its classification of both real and personal assets as well as applicable conventions used in depreciating property. Finally, learners will discover how to use the tax depreciation tables to aid in the determination of allowable cost recovery deductions.

Examples Using the Depreciation Tables7:30

与讲师见面

Petro Lisowsky, PhD, CPA
Associate Professor of Accountancy
College of Business: Department of Accountancy

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Welcome back.

In the previous video, we walked through the depreciation tables in order to

figure out the depreciation deduction amount for the year.

Recall that we needed to know two critical pieces of information

to navigate the tables.

The asset's class life and its convention.

In this video,

let's use some numbers to figure out the depreciation deduction using the tables.

In our first example, we have Mary, who in March, year 20x1,

acquires and places into service office equipment that costs $200,000.

We need to answer three questions.

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What is her MACRS depreciation deduction in the first year?

What is her MACRS depreciation deduction in the second year?

And what if Mary sells the office equipment in the third year?

Again we need to know two things to use the tables, class life and convention.

Let's look at class life first.

To figure out class life, we use exhibit 1 and simply find the asset in the list.

Here we're looking for office equipment.

What's the class life for office equipment?

Well we can see that office equipment is 7-year property.

Okay, the next thing is figuring out which convention we're using,

here Mary placed the asset into service in March.

March is in the first quarter of the year.

To decide whether we use the half year or

the mid-quarter convention we have to ask ourselves.

Was more than 40% of the value of the assets placed into service

during the year, placed into service in the fourth quarter?

In this case, no,

there were actually no assets placed into service in the fourth quarter of the year.

Therefore, we can use the half year convention.

If we use the half year convention, we can look at table one.

And here it is, so which column do we look at?

Well, remember that office equipment is 7-year property, so

we need to look at the 7-year column.

For Recovery Year 1, we see that the applicable depreciation rate is 14.29%.

So what do we do with this 14.29%?

Well we'll multiply the original basis by this depreciation rate.

So to the first question, Mary's original basis was $200,000.

Therefore, her MACRS depreciation deduction in year

20x1 is $200,000 x 14.29%, or $28,580.

Next, what's her depreciation deduction in the second year, in year 20x2?

So here we turn back to Table 1.

Now we're in Recovery Year 2, the applicable

depreciation rate here is 24.49%.

So we take this 24.49% and multiply it by the original basis of $200,000.

Therefore in answering the second question,

Mary's depreciation deduction in your 20X2

is $200,000 x 24.49% or $48,900.

Now what if in year 20X3 Mary decides to sell the office equipment.

Well, if she had kept the equipment, her depreciation rate

in the third recovery year would have been 17.49%.

But the table doesn't know that Mary is disposing of the equipment in year three.

The table is assuming the disposal won't happen until the last year in the table,

in recovery year eight.

Therefore we need to adjust the 17.49% rate ourselves.

That is multiply it by one half to adjust for the fact that we are getting

a half a year's worth of depreciation in the last year of use.

Therefore the depreciation that Mary is allowed to deduct in

the final year of using the office equipment is $200,000

x 17.49% x 1/2, or $17,490.

Okay, now let's assume the same facts as before, but

Mary placed into service that $200,000 office equipment in November of year 20x1.

What happens now?

Well, again we need to know two things, class life and convention.

We're still talking about office equipment, so

the class life doesn't change, it's still seven year property.

However the asset was placed into service in the fourth quarter of the year.

This should ring some bells.

Recall that if more than 40% of the value of assets

placed into service during the year were placed into service in the fourth quarter.

Then the taxpayer has to use the mid-quarter convention and

cannot use the half year convention.

So in this case Mary has to use the mid quarter convention.

So we are going to look at Table 2 to figure out her depreciation rates.

Again office equipment is 7-year property, so

we need to look at the 7-year property panel, the bottom panel.

The equipment was placed into service in November, which is the fourth quarter.

So, we need to look in the Fourth Quarter column.

If it's Recovery Year 1, then we find 3.57%.

So, we take this 3.57% and multiply it by the original basis, or

$200,000, to figure out Mary's depreciation deduction in the first year.

Therefore, Mary's depreciation deduction in year 20x1 is

the original basis of $200,000 x 3.57% from Table 2 to get $7,140.

Next, what is Mary's depreciation deduction in year 20x2?

Well, back to Table Two, we're still talking about 7-year property.

And it was originally placed into service in the fourth quarter of the year,

in November of year 20x1.

So all we do is stay in the Fourth Quarter column, but

just drop down one row to Recovery Year 2.

This gets us a depreciation rate of 27.55%.

So we take this 27.55% and

multiply it by the original basis to get the depreciation deduction in year 20x2.

Therefore Mary's depreciation deduction in that second year is the original basis

of $200,000 x 27.55% from Table Two to get $55,100.

So remember, the two major facts that you need in order to use this tables

are first, the class life and second, the asset's convention.

Once you know these two items you can identify the right depreciation rate for

the particular recovery year.

Then multiply that rate by the original basis to

attain the depreciation deduction for that year.

I hope these examples help you navigate these important depreciation tables.

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