Category Archives: Depreciation

Permanently Extend 15 Year Tax Depreciation on Leasehold Improvements

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15 Year DepreciationCongress has allowed the tax depreciation period on 39 year property to use a 15 year tax depreciation period since 1996. A couple of senators have recently introduced a bill to make this temporary extension permanent. This would promote investments and new construction at restaurants and other commercial properties.

In addition to investment, extending this tax break could create new jobs in construction and at commercial properties. Employers will need additional workers as they expand their restaurants, stores and offices.

In an article from Star News, author Kevin Maurer talks about the efforts of U.S. Sen. Kay Hagan of North Carolina:

Essentially, business owners can recoup the cost of improvements made to their business. The proposed measure would help the state’s $15 billion restaurant industry and its 400,000 jobs, she said. The improvements will also provide needed jobs and dollars to the construction industry.

“It would also provide much-needed certainty that will allow business owners to plan for the future,” Hagan said.

According to Hagan’s release, Congress has temporarily extended the 15-year depreciation period since 1996. The current tax depreciation period is 39 years.

“As a restaurant owner, I make frequent improvements to keep up with normal wear and tear,” said Frank Scibelli, CEO of FS Food Group in Charlotte in a statement. “A 39-year schedule makes no sense in today’s business environment and I’m pleased Senator Hagan is working to make this needed change.”

Read Full Article Here:

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More information about Bassets eDepreciation software can be found at Bassets.net. While there you can set up a demonstration, download a free evaluation copy and get a personalized pricing estimate.

Calculate Depreciation with Units of Production Method

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The units of production method of calculating depreciation is based on actual usage as opposed to a specified period of years and/or months. Depreciation will be higher when the asset is in active production and lower during periods of inactivity. Here is the basic formula for a units of production calculation:

Units of Production

This method is typically limited to more expensive assets since it requires the recording of monthly asset usage and an estimate for total usage over the life of the asset. On the positive side, this method is a very accurate for charging depreciation since it is directly based on the wear and tear of the asset. Here is an example that illustrates a units of production calculation:

  • Assume a $2,000,000 asset
  • Lifetime production of 2,400,000
  • Monthly production of 12,000

In this example monthly depreciation would be $10,000 by using the formula:

  • (12,000 / 2,400,000) *   $2,000,000

The depreciation calculation will fluctuate as the monthly production changes over the life of the asset.  If there is any salvage value, then the cost should be reduced to accurately reflect the true value of the asset. There is also a variation of this calculation for mining operations that allows for the lifetime units to change based on the mine reserve.

Bassets eDepreciation includes an optional module to process units of production. This module enables the entry of lifetime production for each asset and the corresponding monthly production. The monthly production can be manually entered or imported from an Excel spreadsheet.

Questions or comments about this post? We invite you to respond in the space below.

More information about Bassets eDepreciation software can be found at Bassets.net. While there you can set up a demonstration, download a free evaluation copy and get a personalized pricing estimate.

Impact on Depreciation with American Taxpayer Relief Act

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The American Taxpayer Relief Act of 2012 was finally passed by Congress and signed into law last week.  The business tax provisions contained in the bill are as follows:

  • 50% Bonus Depreciation has been extended through December 31, 2013
  • 50% Bonus Depreciation has been extended through December 31, 2014 for certain long production period and transportation assets
  • The 15 year recovery period has been extended from January 1, 2012 through December 31, 2013 for qualified:

Leasehold Improvement Property
Retail Improvement Property
Restaurant Property

  • Section 179 Expensing Election:

The maximum annual expense deduction for 2012 and 2013 has been increased to $500,000

The maximum annual investment limit for 2012 and 2013 has been increased to $2,000,000

For more information CCH has put together a Tax Briefing that covers the entirety of the American Taxpayer Relief Act of 2012 and is located at http://tax.cchgroup.com/downloads/files/pdfs/legislation/ATPR.pdf

Questions or comments about this post? We invite you to respond in the space below.

More information about Bassets eDepreciation software can be found at Bassets.net. While there you can set up a demonstration, download a free evaluation copy and get a personalized pricing estimate.

Determining Asset Property Class – Part 2

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Recently we put up a post on Determining Asset Property Class. It referenced IRS Publication 946 and the importance of choosing the correct property class. Today, we follow that up post by showing how Bassets eDepreciation can simplify this process.

Selecting the appropriate property class is a critical step in determining the correct annual depreciation amount. The property classes are listed in Appendix B of IRS Publication 946. A manual lookup of each class can be very time consuming during asset entry, so Bassets eDepreciation now includes a handy Asset Class form as shown below:

This feature provides an easy retrieval of the accurate IRS property class. As you scroll through the list of asset classes, the correct values for each class are shown below. These values include property type, listed property, class life years, bonus code and section 179. In addition, the years, depreciation method and first year convention are displayed for GDS, ADS and AMT.

Combining a property class lookup with the business rules logic of Bassets eDepreciation allows for intelligent data entry and consistency in all of your business assets.

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More information about Bassets eDepreciation software can be found at Bassets.net. While there you can set up a demonstration, download a free evaluation copy and get a personalized pricing estimate.

Types of Depreciation Schedules by Tax Law

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Depreciation schedules determine the length of an asset’s depreciable life and annual depreciation amount a company can claim. Here is a sample screen shot from Bassets eDepreciation showing 4 sample schedules types:

The Bassets eDepreciation Software has 4 standard depreciation schedules and allows the user to create additional schedules as necessary. Let’s review each of the different schedule types.

  1. IRS – depreciation calculations for filing federal tax return
  2. Financial Book – depreciation calculations for internal accounting and financial reporting
  3. State – depreciation calculations for a selected state
  4. Alternative Minimum Tax (AMT) depreciation calculations based on AMT rules
  5. Adjusted Current Earnings (ACE) – depreciation calculations for ACE based on IRS schedule values
  6. Earnings & Profit (E & P) – depreciation calculations for E & P based on IRS schedule values

Each of these schedules has their own set of rules. An automated fixed asset software product like Bassets eDepreciation will ease the asset entry process and result in accurate calculations. Business Rule Tables determine correct property type, depreciation methods, first year convention and recovery periods for each schedule based asset classification.

It is very important to understand that each of these schedules has their own set of rules based on IRS regulations, Generally Accepted Accounting Principals (GAAP) or individual state law. A well designed fixed asset software package can greatly improve the accuracy of your depreciation calculations and ensure full compliance with accounting standards and associated tax law.

 

Questions or comments about this post? We invite you to respond in the space below.

More information about Bassets eDepreciation software can be found at Bassets.net. While there you can set up a demonstration, download a free evaluation copy and get a personalized pricing estimate.