Permanently Extend 15 Year Tax Depreciation on Leasehold Improvements

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:

Questions or comments on 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

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.

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 – IRS PUB 946

IRS Publication 946 explains how you can use depreciation to recover the cost of business or income-producing property. One of the key elements in determining the correct annual depreciation amount is selecting the appropriate property class. The property classes are listed in Appendix B of this publication with the class life and correct recovery periods for both General Depreciation System (GDS) and the Alternative Depreciation System (ADS).

Bassets eDepreciation includes an enhanced version of the IRS property class table with the following information for each asset class:

  • Property Type
  • Listed Property
  • Depreciation Method
  • First Year Convention
  • Recovery Periods
  • Bonus Code
  • Section 179
  • GDS or ADS

The asset classes can then be associated with your corresponding General Ledger codes. This allows the business rules in Bassets eDeprciation to set the correct default depreciation values during asset data entry and ensure correct calculations.

Source: Publication 946 – How To Depreciate Property

  • Appendix A – MACRS Percentage Table Guide
    • General Depreciation System (GDS)
    • Alternative Depreciation System (ADS)
  • Appendix B — Table of Class Lives and Recovery Periods

Questions? Comments? Let us know in the comments section below.

Depre123-Main w Try Free SF

More information about Bassets eDepreciation software can be found at Bassets.net or depre123.com. At Bassets register for our live webinar, download a free evaluation copy and get a personalized pricing estimate. At depre123 try out our Free Depreciation Calculator and check out our cloud based fixed assets application.

Determining Depreciation Recovery Periods

Determining the correct monthly depreciation amounts for an asset requires the correct usage of recovery periods.  Under MARCS, assets are assigned to a property class such as 3 year, 5 year, 7 year, nonresidential real property, etc.  Associated with each property class is a recovery period in 12 month intervals (years).

The first actual recovery period of an asset is determined by when the asset is placed in service along with the particular convention being used.  Here is an example of an asset that is considered 7-year property with a 7-year recovery period.  Suppose the asset is acquired in 2009 and uses a half-year convention.  The recovery period would start on July 1, 2009.  Thus, because of the half-year convention, depreciation deductions can be expensed through June 30, 2016.

Additional considerations must also be given to which depreciation rules are being followed:  General MACRS Depreciation Rules (GDS) or Alternative MACRS Depreciation Rules (ADS).  Typically, the recovery periods under ADS are longer than GDS.  For example, residential rental property has a recovery period of 40 years under ADS, but just 27.5 years under GDS.  Below is a chart that provides more examples of common business assets and their associated recovery periods under GDS and ADS

Table B – 1: Common Business Assets Recovery Period (In Years)
GDS ADS
0.11 Office Furniture & Equipment 7 10
0.12 Computers & Related Equip 5 5
0.13 Office Machines 5 6
0.21 Airplane (airframe & engines) 5 6
0.22 Autos & Taxis 5 5
0.23 Buses 5 9
0.241 Light General Purpose Truck (<13k lbs) 5 5
0.242 Heavy General Purpose Truck (>13k lbs) 5 6
0.25 Railroad Car & Locomotives, except owned by a Railroad 7 15
0.26 Tractor Unit (tractor-trailer) 3 4
0.27 Trailer & Trailer Mounted Container 5 6
0.28 Vessels, Barges & Tugs 10 18
0.3 Land Improvements (1245 or 1250 Property) 15 20
0.4 Industrial Steam & Electric Generation & Distribution 15 22
B.1 Residential Rental Property 27.5 40
B.2 Nonresidential Real Property, pre 5/13/93 31.5 40
B.3 Nonresidential Real Property, post 5/12/93 39 40
B.4 Computer Software 3
B.5 Trees or Vines Bearing Fruit or Nuts 10 20
B.6 Qualified Leasehold / Restaurant Leasehold Property 15 39
B.7 New York Liberty Zone Leasehold Improvement Property 5 9

At this point, you may be asking how the actual recovery period for an asset is determined.  The answer is that the recovery period is normally established from the class life of the property.  For a more detailed understanding of class life periods, click here for the post on this topic.

Depre123-Main w Try Free SF

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.