Category Archives: Methods

Change the Useful Life on an Active Asset

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How can you change the useful life of an asset without altering prior accumulated depreciation and only impact the calculations going forward?

The Remainder Life method provides the user with the ability to shorten or lengthen the useful life of an asset at any time during the original recovery period. When the Remainder Life method is selected, Bassets eDepreciation will amortize the net book value as of the effective date of the change to Remainder Life in equal amounts over the new remaining life. There are four key pieces of information shown below:

The start date is the effective date to begin the remainder life calculation and the new useful life can be entered in both years and months. The original method is stored to ensure the accuracy of the prior calculation.

Changing the useful life of an asset will not alter the total amount of depreciation of that asset. However, it will impact the amount that is depreciated by year. For instance if a $6,000 asset was using straight line depreciation over 5 years, then the annual depreciation amount would be $1200 or $100 per period. If the useful life was then changed to 1 year after 2 years have already been depreciated, the remaining $3,600 would be spread over 12 months or $300 per period.

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.

New York Liberty Zone Depreciation

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Continuing with the segment on Bonus Depreciation, this post will address depreciation rules for property in the New York Liberty Zone.  A little over eight years ago, the atrocious events of September 11 left our country devastated physically, emotionally, and economically.  With regards to the economic turmoil that ensued, particularly in the area of the World Trade Center, special provisions were made for property put into service in what is known as the New York Liberty Zone.  Below is what you need to know including the geographic boundaries of the Liberty Zone.

As stated on the IRS Supplement to Publication 946, the area defined as the Liberty Zone is property “located on or south of Canal Street, East Broadway (east of its intersection with Canal Street), or Grand Street (east of its intersection with East Broadway) in the Borough of Manhattan in the City of New York, New York.”  For a detailed map, click here

Eligibility and Essential Info on Bonus Depreciation for Property in the Liberty Zone:


New York Liberty Zone Depreciation

1.  Qualified property must be:

  • Depreciated under MACRS with a recovery period of 20 years or less.
  • Off-the-shelf computer software (SL w/ FM at 3 years) Sect 167(f)(1)(B)
  • Water Utility property
  • Section 1250 property that rehabilitates damaged property or replaces property destroyed or condemned as a result of 9/11

2.  Additional Requirements:

  • 80% or more of the use of the property must be in the New York Liberty Zone.
  • Property must be used in the active conduct of a trade or business by the taxpayer in the Liberty Zone.
  • Original use of the property must commence on or after 9/11/01 in the Liberty Zone
  • Property must be acquired by purchase as defined in Code Section 179(d)(2) by taxpayer on or 9/11/01
  • Property must be placed in service by taxpayer on or before 12/31/06 or 12/31/09 for section 1250 property

3.  Does not qualify for Bonus Depreciation under Sect 168(k), but does qualify for a 30% Bonus Depreciation under Sect 1400L(b)(1)(A). Property that qualified under 168(k) is specifically excluded.

4.  ect 1400L(b)(1)(A) is more liberal and will cover property not eligible under Sect 168(k).  Property placed in service after 12/31/04 and before 1/1/07 may also qualify for New York Liberty Zone.

5.  Liberty Zone Bonus Depreciation is available for residential and nonresidential real property that replaces certain destroyed or condemned real property and for used property as long as the taxpayer was the first person to use the property in the New York Liberty Zone.

6.  Sect 168(k) eligible property is also eligible under New York Liberty Zone rules.

7.  Sect 179 Deduction is increased by $35,000.

8.  Mandatory MACRS ADS property disqualified

9.  Leasehold Improvement property is depreciated over 5 years with straight line and the half year convention

10  No AMT adjustment is required.  I.e., same method, convention & Rec Pd as regular tax.

We understand that the concepts around Bonus Depreciation for property in the New York Liberty Zone may be rather confusing.  Therefore, if you have any questions, or would like any further information, please state so in the comments section, or under the questions page.  Also, you may find it interesting to read Governer Pataki’s letter to bussiness owners concerning this issue here.

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.

History of Bonus Depreciation: Amended

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Bonus Depreciation has become a hot topic and has seen many changes over the last decade.  There are also continuing debates as to how effective it really is.  However, we will attempt to clarify the issues of bonus depreciation by covering all the aspects and history.  Continuing from the initial post on Bonus Depreciation and the Initial Law, this post will be the first of a series detailing the variables of different eras of bonus depreciation.  Included in each post will be a breakdown everything you need to know from the allowable amount to what legislation is behind the respective bonus depreciation.  This particular post will discuss everything about the Amended Law for bonus depreciation stemming from the Job and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA).

In May of 2003 President Bush signed into effect the JGTRRA, which essentially accelerated or expanded many of the provisions under the Economic Growth and Tax Relief Reconciliation Act of 2001.  As a result of this act, the previous rules of bonus depreciation created in 2003 under the JCWAA of 2002 were amended.  Under this act, eligible assets acquired after 05/05/2003 and before 1/1/05 and placed in service before 1/1/05 were able to receive 50% Bonus Depreciation.  Taxpayers could also elect to use the 30% instead of the 50% Bonus.

With regards to eligibility, here is a chart with the essential information concerning Federal Guidelines.

Bonus Depreciation Chart

For the purpose of state corporate income tax reporting, different states had their own regulations governing bonus depreciation.  Some chose to allow the federal guidelines, while others do not.  Below is the breakdown.

1.    The following states (13) allowed the Federal Bonus Depreciation for state corporate income tax purposes:  Alabama, Alaska, Colorado, Delaware, Florida, Kansas, Louisiana, Montana, New Mexico, North Dakota, Oregon, Utah and West Virginia

2.    The following states (22) DID NOT allow the Federal Bonus Depreciation for state corporate income tax purposes:   Arizona, Arkansas, California, Connecticut, District of Columbia, Georgia, Hawaii, Idaho, Indiana, Kentucky, Maryland, Massachusetts, Mississippi, New Hampshire, New Jersey, New York, Rhode Island, South Carolina, Tennessee (JCWAA only), Vermont, Virginia, Wisconsin

3.    The following states (4) DID NOT impose a state corporate income tax purposes:  Nevada, South Dakota, Washington and Wyoming

4.    The following states (14) provided their own form of Bonus Depreciation for state corporate income tax purposes:  Illinois, Iowa, Maine, Michigan, Minnesota, Missouri, Nebraska, New York, North Carolina, Ohio, Oklahoma, Pennsylvania, Tennessee, Texas

Hopefully this has provided much of the information that you are looking for about amended bonus depreciation deriving from the JGTRRA.  For any general questions, or questions concerning specific state legislature, please ask us under our questions page or below in the comments and we will be happy to assist you.

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.

Basic Methods for Calculating Depreciation

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There are two basic methods of depreciation to choose from when depreciating an asset.  These methods include Straight-line, and Declining Balance at either 200% or 150%.   Choosing among these methods depends on how a company wishes to receive depreciation expenses.

The Straight-Line method is generally the most commonly used method due to its simplicity and consistency of allocating depreciation evenly over the useful life of the asset.  To calculate depreciation under this method, the Cost of the Asset is reduced by the salvage or residual value to arrive at the depreciable basis.  The resulting depreciable basis is then divided by the estimated useful life.

The Double Declining Balance (200% Declining Balance) method is also commonly used, as it follows the same principles as the straight-line method, but does so at twice the rate.  Thus, if an asset has an estimated useful life of 4 years, straight-line depreciation would be at an average annual rate of 25%.  However, under this method, a 50% rate would be used.  This would be done each year until depreciation under this method is lesser than it would be under the straight line method.

Use of a 150% Declining Balance method follows the same principle as the 200% Declining Balance method, except uses 1.5 times the straight-line rate.  Thus, an average annual rate of 25% under straight-line would become 37.5% under 150% declining balance.

While the use of salvage or residual value is discussed here, please note that salvage or residual value are only used for Generally Accepted Accounting Principles (GAAP) and are not allowed for federal tax.

Choosing any of these accelerated methods has the benefit of receiving more depreciation benefits during the beginning of the asset’s useful life at the cost of receiving less later on.  However, many feel that this is more appropriate as the asset is most valuable and usable during the early stages of its life.

Here is a numerical example to illustrate the accelerated effect of double declining balance vs straight line depreciation.  For this example, consider an asset that was purchased for $1,000 with a useful life of five years.  Below are the values of depreciation determined for the five years of the asset’s life based on the two different methods:

Depeciation Calculation Using Straight-line vs 200% Declining Balance

What method(s) do you use?  We would be happy to hear what methods your company uses and any reasoning behind it.

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.