Discussion:Minimum $$$ to Depreciate

Jeff

My practice has rarely had anyone exceed the 179 limits, and most of my clients are individuals, but since 179 cannot be used for rental property, cases like this are of great interest. My problem cases are employees, players in major symphony orchestras, who buy expensive instruments. Courts in the 2nd and 3rd Circuit have found them depreciable, but since they are Miscellaneous deductions, AMT makes much of the depreciation expense moot, so that I find myself electing long lives. I tell them to embark on careers as soloists, so that Schedule C will take the depreciation.

I was talking to an officer at the property tax office - she said you better at least have a phone and a desk on the return as all companies need them. However, on the return you are also supposed to record supplies (not capitalizable). Who knows what’s best there?

Then there's the 1 year rule.

I think I like the $1,000 limit, the 1 year rule and the grouping concept like MSTguy mentioned. The reason is there are so many small expensive electronic gadgets out there that may be lost or break real quick; but items that tend to stick around forever like furniture add to the value of the business as a group. Also, capitalizing these group items may be desirable from a financial planning viewpoint. For example, if the business wants to get financing, a healthy balance sheet always helps.

Jeff

If I buy a desk for $7, that does't change the fact that I have to take a depreciation deduction of $1 a year. Of course, this is what Sec 179 was made for.

Conversely, if I buy a giant box of paper clips for $20,000 (not that this would happen in the real world), that is a business expense. Those paper clips have a useful life of one year (the owner would have to be careful that most or all of the paper clips were used in year one).

The cost of the asset has absolutely nothing to do with it.

That being said, I agree that Section 179 should be broadened to include rental and other non-personal acquisitions of assets. It should also not have dollar limits of any kind. But then again, I'm not Congress--I'm just a lowly tax preparer.

A desk, computer, car, or building has a useful life of greater than one year, also because the IRS says it does. Wishing it were different does not make it so.

In order to avoid pages and pages of depreciation, Section 179 was created and expanded. This way, personal property depreciable items can usually be written off in the first year by most businesses.

This type of fudging can lead to more serious problems in the area of repairs vs. improvements, personal use of a rental property, etc. The rule is the rule is the rule. There are plenty of good ones we can take advantage of--no need too commit tax fraud.

1. New Lighting for interior & exterior - 3,841 - CAP Building Improvements - MACRS 31.5/39 NRE

2. Parking Area Paved - 4,857 - CAP Land Improvements - Nondepreciated

3. Front Office Windows - 904 - CAP Building Improvements - MACRS 31.5/39 NRE

4. Fence and Gate Replacement - 4,641 - REPAIR?

Would this be the proper treatment of these transactions?

Only 7 days for the 1st round!

Thanks!

1. If new lighting is part of the building, yes.

2. 15 years

3. yes.

4. Probably.

Rental same rule. If part of a remodeling job however, and even though each item may be less than $1,000, we aggregate all to make a depreciation determination.

$5,000 is a limit specifically stated in federal guidelines for capitalization purposes.

There is a difference between a capitalization policy and an asset tracking policy.

A worse issue was for nonprofits buying computers and then buying new ones and parts of the old computers het swapped in and out. Tracking for depreciation is a bear. No need.

One thing to always take into account is the cost benefit of each item of advice we recommend. I issue management letters all the time indicating internal control procedures to implement that would benefit the agency, but the cost of implementation outweighs the benefit.

Tracking a $7 desk is redonkulous in my opinion. If an IRS agent came in and wanted it that way, I'd throw his/her ass out of my office and would go so far up the chain of command that he would get fired for wasting taxpayers dollars.

There is law and there is common sense, there has to be a balance.

$500/$1,000 is a good start. I lean towards the higher end.

And grouping things just to capitalize. Me no like.

The batteries in my wireless keyboard are failing, causing &*9kkj keyb8oad in^4puts.

I have never come across this and would be very interested in this. Have not come across any $$ amount for that purposes in any federal guidlines but certainly agree with the common sense method.

(1) Makes the return cost more due to time or per line entry charges (2) Makes the client copy fatter - justifying a larger fee - add the schedules for AMT and state depreciation and you can really tack on the pages. (3) Makes it more expensive at startup for another preparer to do the return

Where is are cost segregation study guy when you need him?

Where the Fortune 500 Publicly Traded Corp. can expense a $10-million Subsidiary.

(1) There is authority for limited expensing under the Court of Claims railroad case regarding the issue. This was followed in Alacare (sp?).

(2) The new proposed capitalization regs create a $100 expensing safe harbor threshold subject to various limitations. Cf Alacare.

(3) Roy, lighting is always a part of the building in the sense that it is attached to it, but it is a section 1245 building component that must use a shorter recovery period when it is readily removable without damage to the underlying building and is not more than incidentally related to the operation and maintenance of the building. This is usually demonstrated by showing that it provides a decorative or other non-building function.

By the way does anyone remember when the investment tax credit was first passed by congress during President Kennedy term in office?

I do.