1. Capitalized Costs and Depreciation

2. Capitalized Costs and Depreciation
Chapter
Title 1
Tax Basis of Property Acquisitions 2
Expensing vs. Capitalization 3
Amortization, Depreciation, and §179

3. Module Overview At the end of this module, you will be able to:
Gather the information needed to make the call on the treatment of costs as capital versus expense.
Determine the appropriate depreciation schedule based on the nature of the asset and to optimize the tax result.

4. Tax Basis of Property Acquisitions
Chapter 1
Tax Basis of Property Acquisitions

5. Cost Basis Cash payments
Fair market value of non-cash property given in exchange
Acquisition costs, including
Freight
Purchase commissions
Title fees
Transfer taxes and sales taxes

6. Cost Basis Installation and testing costs
Real property taxes owed by seller, paid by purchaser

7. Acquisition Financing
Initial basis includes:
Liabilities incurred to acquire property
Seller debt assumed by buyer
Debts to which property continues to be subject after acquisition, including nonrecourse debt
Amount of purchaser debt included in tax basis determined under OID rules if not adequate stated interest

8. Lump-Sum Purchase of Business Assets
Class I: Cash and cash equivalents
Class II: Marketable securities, certificates of deposit, and foreign currency
Class III: Accounts receivable, mortgage receivables, and credit card receivables
Class IV: Inventory and stock in trade

9. Lump-Sum Purchase of Business Assets
Class V: All other tangible assets
Class VI: Identifiable intangible assets other than goodwill and going concern value
Class VII: Goodwill and going concern value

10. Lump-Sum Purchase of Business Assets
Form 8594 is required to be filed in duplicate:
Buyers to file with their income tax return
Sellers to file with their income tax return
Form shows the allocation of the asset purchase price among the categories

11. Lump-Sum Purchase of Business Assets
Form 8594 is required to be filed in duplicate:
The amounts must match between the parties or an IRS notice will likely result
The allocation agreement is usually an Appendix to the purchase/sale agreement
The FEIN numbers of each party must be made available to each other as it is required to be entered in the form

12. Capitalized Cost of Self-Constructed Assets
Direct construction costs
Allocable portion of indirect costs that directly benefit or are incurred by reason of production or resale activities

13. Capitalized Indirect Costs of Self-Constructed Assets IRC Section 263A
Indirect labor and indirect materials
Officer’s compensation
Employee pension and benefits costs
Purchasing, handling, and storage costs

14. Capitalized Indirect Costs of Self-Constructed Assets IRC Section 263A
Depreciation, rent, insurance, utilities, repairs, and maintenance on production facilities or equipment
Non-income taxes attributable to labor, materials, supplies, equipment, land, or facilities used in production or resale
Construction-period interest
Capitalizable service costs

15. Basis of Property Acquired in Nontaxable Exchange
Basis of property surrendered in exchange
Plus gain recognized
Minus loss recognized
Minus value of cash or nonqualifying property received

16. Basis of Property Acquired in Nontaxable Exchange
Example 1-16
Flack Inc. transferred land (Property A)
FMV of $50,000
Adjusted basis of $28,000
to Jennings Corporation in exchange for Other land (Property B)
FMV $50,000.

17. Basis of Property Acquired in Nontaxable Exchange
Example 1-16
If the transaction does not qualify for a nontaxable exchange, then
Flack recognizes gain of $22,000 disposition Property A.

18. Basis of Property Acquired in Nontaxable Exchange
The cost basis of Property B is $50,000.
If the transaction qualifies as a nontaxable exchange, Flack will not recognize its $22,000 realized gain.
Basis Property B = $28,000 (substituted basis of Property A).

19. Basis of Property Involuntary Conversion
Example 1-20
Travel Corporation owned a warehouse:
Tax basis of $300,000 that was destroyed in a flood
Insurance reimbursement for its loss of $400,000
Realized gain = $100,000 on the involuntary conversion

20. Basis of Property Involuntary Conversion
Travel Corporation owned a warehouse:
If Travel purchases qualifying replacement property within two years at a cost of $400,000 or more, the gain is not recognized
Assume Travel paid $460,000 for qualifying replacement property:
Replacement property = $360,000
($460,000 cost – $100,000 gain not recognized on the involuntary conversion)

21. Basis of Property Involuntary Conversion
Example 1-20
Assume instead Travel paid $380,000 for qualifying replacement property.
Because it did not reinvest the entire amount of the insurance reimbursement, it will recognize $20,000 of gain on the involuntary conversion
Tax basis in the replacement property = $300,000
($380,000 cost – $80,000 gain not recognized).

22. Expensing vs. Capitalization
Chapter 2
Expensing vs. Capitalization

23. Capitalized Intangibles
15-yr. safe harbor amortization
25-yr. amortization
Improvements to realty owned by another

24. Facilitative Costs for Business Acquisitions
Acquisition of assets that constitutes a business
Acquisitions of ownership interest – related party
Acquisition of ownership interest
Restructuring, recapitalization or reorganization
Transfer to a corporation or partnership

25. Facilitative Costs for Business Acquisitions
Formation of a disregarded entity
Acquisition of capital
Stock issuance
Issuance of debt
Writing an option

26. Facilitative Costs for Business Acquisitions
Exceptions:
De minimis amounts investigating < $5,000
Employee compensation and overhead
Amount paid to integrate business operations

27. Facilitative Costs for Business Acquisitions
Exceptions:
Bright line date-up to letter of intent or material terms
Unless inherently facilitative:
appraisal, structuring,
preparing and reviewing documents,
obtaining regulatory and shareholder approvals,
conveying property

28. Prepaid Expense 12-Month Deduction Rule
Prepayment for goods & services = economic performance and therefor deduction if benefits do not extend beyond earlier of:
12 mos. after receive first benefit
End of tax year, following year of payment

29. Prepaid Expense 12-Month Deduction Rule
Example 2-10
On December 1, 2012, N Corporation
pays a $10,000 insurance premium - property insurance policy

30. Prepaid Expense 12-Month Deduction Rule
One-year term beginning on February 1, 2013
The right attributable to the $10,000 payment extends beyond the end of the taxable year following the taxable year in which the payment is made
The 12-month rule does not apply and N is required to capitalize the $10,000 payment

31. Prepaid Expense 12-Month Deduction Rule
Example 2-10
Assume the same facts, except:
One-year term beginning on December 15, 2012

32. Prepaid Expense 12-Month Deduction Rule
12-month rule now applies because the right attributable to the payment does not extend more the 12 months beyond December 15, 2012 (the first date the benefit is realized by the taxpayer)
Nor beyond the taxable year following the year in which the payment is made
Accordingly, N is not required to capitalize the $10,000 payment 

33. 12-Month Rule: Accrual Method
Economic performance
Receive goods/services - 3½ mos after Y/E
Payment = economic performance
for insurance, taxes, licenses
Payment is not economic performance for prepaid rent

34. Accounting Method Changes
Automatic consent for tax years ending after December 31, 2005
Form 3115 with tax return
No user fee
Rev. Proc
Applies to 12-mo. prepaid expense rule

35. Other Deduction Issues
Expensing environmental clean-ups:
Capitalize to inventory (Rev. Ruls & )
Qualified contaminated sites OK per §198
Currently §198 expensing extended through 2009 only
Asbestos removal deduction (Cinergy Corp.)
Removal of depreciable assets (Rev. Rul )

36. Expenditures Related to Tangible Assets
New Temporary Regulations effective 2014 (now effective)
Replaced proposed regulations issued in which were not effective

37. Materials and Supplies
Tangible property used or consumed in operations that is not inventory and that:
Is a component acquired to maintain, repair, or improve a unit of tangible property owned, leased, or serviced by and not part of any single unit of tangible property;
Consists of fuel, lubricants, water, and similar items, reasonably expected consumed in 12 months or less, beginning when used in taxpayer's operations;

38. Materials and Supplies
Unit of property economic useful life of 12 months or less, beginning when used or consumed
Is a unit of property acquisition cost or production cost of $100 or less; or
Federal Register or Internal Revenue Bulletin
(see § (d)(2)(ii)(b)) as materials and supplies

39. Economic Useful Life
Economic life matches that of Applicable Financial Statement (AFS), if taxpayer has one
Otherwise uses period expected to be used
Applicable Financial Statement Priority:
SEC Filing
Certified financial statement
Other filed (with a govt. or agency) financial statement other than return

40. Capitalization Required
New buildings or permanent improvements or betterments that increase the value
Restoring property or in making good the exhaustion thereof for which an allowance is or has been made.
§263A still applies for direct and indirect costs

41. Other Rules Elect to capitalize unless a prohibited item
Optional method for spare parts

42. Seven Items Requiring Capitalization
An amount paid to acquire or produce real or personal tangible property.
An amount paid to improve real or personal tangible property.
An amount paid to acquire or create intangibles.
An amount paid or incurred to facilitate an acquisition of a trade or business, a change in capital structure of a business entity, and certain other transactions.

43. Seven Items Requiring Capitalization
Acquisition costs-land, easements, life estates, mineral interests, timber rights, zoning variances, or other interests in land.
Agreement between bondholders or shareholders in reorganization.
Guaranty of dividends in securing new capital for the subsidiary and increasing the value of its stockholdings in the subsidiary.

44. Facilitative Costs General rule is to capitalize
Includes investigative costs with some exceptions
Allocate among separate and distinct properties that are part of the transaction

45. 11 Examples of Facilitative Costs
Transporting the property;
Securing an appraisal or determining the value or price of property;
Negotiating terms/structure of acquisition and tax advice on the acquisition;
Application fees, bidding costs, or similar expenses;
Preparing and reviewing the documents (bid, offer, sales contract, or purchase agreement);

46. 11 Examples of Facilitative Costs
Examining and evaluating the title of property;
Obtaining regulatory approval, securing permits
Conveying property (sales and transfer taxes, and title registration costs;
Finders' fees or brokers' commissions
Architectural, geological, engineering, environmental or inspection services
Services qualified intermediary or other facilitator of an exchange under §1031.

47. De Minimis Rule for Acquisition or Production of Property
Does not apply to inventory or land
A qualifying taxpayer for this purpose must:
Have an AFS,
Have written accounting procedures for the expensing of de minimis items,
Recognize de minimis costs as expenses on its AFS, and

48. De Minimis
The total aggregate of amounts paid and not capitalized under this rule and the material and supplies rule for the tax year are less than or equal to the greater of:
0.1 percent of the taxpayer's gross receipts
2 percent of the taxpayer's total depreciation and amortization expense

49. Improvements Result in a betterment to a unit of property,
Capitalization required amounts paid that:
Result in a betterment to a unit of property,
Restore a unit of property, or
Adapt a unit of property to a new or different use.

50. Unit of Property Concept very important to understanding the new rules
Functional interdependence
Special rules for certain types of property

51. Buildings
Each building and it’s components are a single Unit of Property
Improvements to building include:
Building structure

52. Buildings Improvements to building include: Building system HVAC
Fire protection
Plumbing system
Fire alarms
Electrical system
Security system
Escalators and elevators
Gas distribution system

53. Routine Maintenance Safe Harbor (for Property other than Buildings)
Relevant considerations include:
The recurring nature of the activity-
expected to occur more than once during unit’s class life
Industry practice,
Manufacturer recommendations,
Taxpayer experience, and
The treatment of the activity on the taxpayer's AFS.

54. Safe Harbor Exceptions
Items that ARE NOT included in definition of routine maintenance:
Replacement of a component of a unit of property deducted as a loss (other than a casualty loss under Regulation § )
Replacement of a component of a unit of property wherein realized gain or loss has resulted from the sale or exchange of the component.

55. Safe Harbor Exceptions
Items that ARE NOT included in definition of routine maintenance:
Repair of damage and a basis adjustment has been taken from casualty loss under §165, or relating to a casualty event described in §165.

56. Safe Harbor Exceptions
The safe harbor does not apply to the cost of replacement components to:
Return a unit of property to its ordinarily efficient operating condition, if it has deteriorated to a state of disrepair and is no longer functional for its intended use.
Repairs, maintenance, or improvement costs under the Optional method of accounting for rotable and temporary spare parts per Temporary Regulation § T(e).

57. Betterments
Correction of pre-acquisition or pre-production material condition or defect
Material addition to the unit of property, i.e; physical enlargement, expansion, or extension
Material increase in the capacity, productivity, efficiency, strength, or quality of the unit of property or its output.

58. Restorations
Replacement of a component of a unit of property deducted as a loss (other than a casualty loss under Regulation § )
Replacement of a component of a unit of property wherein realized gain or loss has resulted from the sale or exchange of the component.
Repair of damage and a basis adjustment has been taken from casualty loss under §165, or relating to a casualty event described in §165.

59. Restorations
Return unit of property to ordinarily efficient operating condition if deteriorated to a state of disrepair and no longer functional for its intended use;
Rebuilding to like-new condition after end of class life
Replacement parts of major component or a substantial structural part of a unit of property.

60. Updated Automatic Consent Procedures
Revenue Procedure
Updates prior guidance for automatic changes
Automatic consent to utilize new Temporary Regulations affecting the capitalization of tangible assets

61. Updated Automatic Consent Procedures
Revenue Procedure
New automatic consent procedures
Change to the methods of accounting for depreciation of grouped assets (discussed in chapter 3)

62. Amortization, Depreciation, and §179
Chapter 3
Amortization, Depreciation, and §179

63. Corporate Organizational Costs
Current rule (post 10/23/2004):
In the taxable year in which a corporation begins business
Deduct the lesser of $5,000 (reduced by the amount of the costs > $50,000) in that year and
Corporation may elect to capitalize excess and amortize over 180 months
Deemed election made by capitalizing on timely filed return
All organizational costs of the corporation are considered in determining if the total is > $50,000

64. Start-up Costs Current rule (post 10/23/2004):
In the taxable year in which a taxpayer begins an active trade or business
Deduct the lesser of $5,000 (reduced by the amount of the costs > $50,000) in that year and
Taxpayer may elect to capitalize excess and amortize over 180 months beginning with the month active business begins
Deemed election made by capitalizing on timely filed return
All start-up costs of the taxpayer are considered in determining if the total is > $50,000

65. §197 Intangibles Definition 15-year straight line amortization
Goodwill, going-concern value
Employee, customer, supplier intangibles
Licenses, permits
Non-compete agreements
Franchises, trademarks, trade names
15-year straight line amortization

66. §197 Intangible in a Stock Redemption Example
Corp.
$3.5 M
for stock
$1.3 M
Noncompete
(5 yrs.)
S/H

67. Cost Recovery/Depreciation
Leasehold improvements
Capitalize and depreciate SL - 39 yrs.
Deduct at abandonment
SL-15-year amortization for qualified restaurant and retail property acquired prior to 2014

68. Cost Recovery/Depreciation
Demolition
Capitalize to land
De Cou case:
Not incurred “on account of” demolition
Loss must be taken in year prior to demolition

69. MACRS Depreciation Class life system
No “estimated useful life” criteria
Asset subject to wear, tear
Asset used in business/investment
Residential rental: 27.5 yrs.
Commercial real estate: 39 yrs.
Retail motor fuel bldgs. (C-stores): 15 yrs.
Restaurant bldg. improvements: 15 yrs (through )

70. MACRS Depreciation Half Year Convention
Acme Corp. buys an asset (7-year class) on February 15, 2013, for $10,000 (assume expensing is not elected and a non-bonus depreciation year).
The declining balance rate:
Divide 1 by 7 to get the basic rate of 1/7 or percent.
Since this is 7-year property and the 200 percent declining balance applies, Acme multiplies percent by two or percent.
A half-year convention must be used.

71. MACRS Depreciation Half Year Convention
2013: $10,000 x 28.58% = $2,858 x ½ = $1,429
14.29%
2014: $10,000 - $1,429 = $8,571 x 28.58% = $2,450
24.50%
2015: $8,571 - $2, = $6,121 x 28.58% = $1,749
17.49%
2016: $6,121 - $1, = $4,372 x 28.58% = $1,250
12.50%
2017: $4,372 - $1, = $3,122 x 28.58% = $892
8.92%

72. MACRS Depreciation Half Year Convention
2018
Remaining basis: $2,230 ($3,133 - $892) Declining balance deduction: $637 ($2,230 × 28.58%).
2019 &
2020
Switch to straight-line: $892 deduction ($2,230 / 2.5 remaining years in recovery period).
2020*
$446 deduction (half-year of write-off).
$10,000
Total write-off claimed for the property the asset’s cost.
* Final year

73. MACRS Depreciation Half Year Computation
Half-Year Depreciation Computation
On August 15, 2013, Ames Corp. places in service a piece of equipment used in its business that cost $1000,
Having a 5-year class (assume no bonus depreciation).
The declining balance method is used.

74. MACRS Depreciation Half Year Computation
2013: $200 [$400 (40% × 1000) × ½*
2014: $320 [$ $200 = $800 × 40%]
2015: $192 [$ $522 = $478 × 40%]
2016: $115 [$ $712 = $288 × 40%]
2017: $115
2018: $58
*Half year applied Year One

75. MACRS Depreciation Mid quarter convention applies if:
40 percent or more of the total cost basis of property additions are placed in service during the last three months of the tax year.
Does not apply to nonresidential real property/residential rental
Does not include cost of properly elects to expense under §179 (only aggregate depreciable basis is considered for the 40 percent test); and (2) property not depreciated under §168.

76. MACRS Depreciation
The mid-quarter convention may apply whether the taxpayer’s year is a full 12 months or a short tax year.
If the year consists of three months or less, the mid- quarter convention applies automatically [Reg. §1.168(d)-1(a)].
All group members included on a consolidated return are treated as one taxpayer for purposes of the 40 percent test

77. MACRS Depreciation Quarter of tax year Percentage First
Determine the depreciation for the full tax year and multiply by the following percentages for the quarter of the tax year the property is placed in service.
Quarter of tax year
Percentage
First
87.5% = (10.5/12)
Second
62.5% = (7.5/12)
Third
37.5% = (4.5/12)
Fourth
12.5% = (1.5/12)

78. MACRS Depreciation
Nonresidential real property includes most real property (§1250 property) that is not residential rental property and real property with a class life of years or more.
Depreciated over 39 years (31.5 years if placed in service before May 13, 1993) using the straight-line method and a mid-month convention.

79. MACRS Depreciation
Residential rental property is a rental building or structure for which 80 percent or more of the gross rental income for the tax year is rental income from dwelling units.
Depreciated over 27.5 years using the straight-line method and a mid-month convention.

80. MACRS Depreciation MACRS Depreciation - Mid-month Convention
Delta Corp buys a building for $1,000,000 plus land for $200,000 on January 5,2013.

81. MACRS Depreciation Depreciation is calculated as follows:
$1,000,000/ 39 years = full year of $25,641
$25,641/12 = monthly depreciation = $2,137
Mid-month convention - assume building acquired in the middle of January.
11.5 months depreciation, assuming the property was held for the remainder of the year of 2013
$24,576 ($2,137 × 11.5 months).

82. Trades of MACRS Property
For assets acquired in a nontaxable exchange:
Continue same method and life over remaining recovery period (if same recovery period)
Excess (Boot): treat as a new asset

83. Trades of MACRS Property
Taxpayer an elect out of exchange treatment on an individual case basis
If made, the election applies to both the relinquished MACRS property and the replacement MACRS property
For depreciation purposes, the sum of the exchanged basis and excess basis, if any, in the replacement property is treated as placed in service at the time of the replacement.
The adjusted depreciable basis of the relinquished MACRS property is treated as being disposed at the time of disposition.
This does not affect the non recognition of gain on the exchange.

84. Cost Segregation Hospital Corporation of America
Landmark case
Assets that are not structural components can be depreciated as tangible personal property and accelerated depreciation over 5-7 years is achieved versus straight line depreciation over 39 or 27.5 years.
IRS Legal Memo
Dictates a “logical and objective measure” in determining what is and is not a structural component
Correction of depreciable life
Regs. require accounting method change
Waiver of 2-yr. rule in this case a taxpayer can amend a prior return or file a change in accounting method

85. Correcting Depreciation in Year of Disposition
Rev. Proc
Can file Form 3115 in year of disposition
If the error is caught after only one year, can correct with amended return as long as subsequent year’s return not filed

86. Correcting Depreciation in Year of Disposition
H Corp acquired and placed in service $100,000 of tangible personal property in 2012, categorizing the equipment as 7-year property.
In 2013, H Corp discovers assets should be classified as 5-year property under the MACRS recovery periods.

87. Correcting Depreciation in Year of Disposition
H Corp has the option:”
of either filing an amended 2012 return or
filing a Form 3115 with its 2013 return, and claiming the omitted depreciation as a §481(a) negative (additional expense) amount in 2013.

88. Bonus Depreciation §168(k)
Additional first-year depreciation (“bonus depreciation”) is allowed for “qualified property.”
The bonus depreciation is allowed at a rate, generally, of 50 percent
but 100 percent for property acquired and placed in service, generally, after Sept. 8, 2010 and before ).

89. Bonus Depreciation §168(k)
Qualified property:
NEW MACRS property < or = 20 year recovery
Depreciable computer software – not§197
Water utility property
Qualified leasehold improvement property

90. Bonus Depreciation §168(k)
The original use of the property must begin with the taxpayer after Dec. 31, 2007,
the property must be acquired by the taxpayer either after Dec. 31, 2007 and before Jan. 1, 2014, and
no written binding contract for the acquisition can be in effect before Jan. 1, 2008, or
under a written binding contract entered into after Dec. 31, 2007, and before Jan. 1, 2014.

91. Bonus Depreciation §168(k)
The property must be placed in service by the taxpayer before Jan. 1, 2014, except
certain property with a long production period or certain aircraft is “qualified property” if it is placed in service before Jan. 1, 2015.

92. Bonus Depreciation §168(k)
Meeting the Original Use Test
Late in 2013, Sharpware, Inc., a tool and dye maker, acquires Machine A for $30,000.
Machine A was acquired from another tool and dye maker that had previously used this asset in its business.

93. Bonus Depreciation §168(k)
Before placing Machine A in service, Sharpware spends $12,000 to recondition this asset.
No part of the $30,000 purchase price of used Machine A qualifies for the 50 percent depreciation allowance,
$12,000 reconditioning expenditure satisfies the original use test and Sharpware may claim a $6,000 bonus depreciation deduction.

94. Bonus Depreciation §168(k)
50 percent Bonus Depreciation on Leasehold Improvements
Bellco, Inc. leases space in a shopping mall beginning in November of 2013.
Under the terms of the lease, Bellco must incur the cost of any improvements to reposition the interior walls within its lease space, as well as to add ceilings, lighting, and related interior improvements.

95. Bonus Depreciation §168(k)
Assuming that this shopping mall is more than three years old at the time of the improvements by Bellco, these leasehold improvements to the building will qualify for the 50 percent bonus depreciation.
After claiming the 50 percent deduction, Bellco depreciates the remaining basis of these improvements over a 15-year recovery period.

96. Bonus Depreciation §168(k)
Furniture, fixtures, and other tangible personalty purchases made by Bellco during 2013, assuming meeting the original use test, would also qualify for the 50 percent bonus, with the remaining depreciation claimed over a five-year recovery period.

97. Bonus Depreciation §168(k)
Taxpayers can elect to forgo bonus and accelerated depreciation in exchange for the present allowance of certain otherwise-deferred credits.
The election had to be made beginning with the first tax year ending after Mar. 31, 2008 (the post-Mar election).

98. Bonus Depreciation §168(k)
Taxpayers that didn't make the post-Mar election can make the election only for tax years ending after Dec. 31, 2008 (the post-Dec election).
Taxpayers that made neither the post-Mar election nor the post-Dec election can make the election only for tax years ending after Dec 31, 2010.

99. Bonus Depreciation §179 and § 168(k)
The reduction in§179 expensing impacts, generally, only smaller businesses, and
The elimination of bonus depreciation (§ 168(k) is, generally, but not exclusively, of interest to larger businesses.

100. Luxury Vehicle Limits 2010-2011
$3,060 ($11,060 if 100% eligible for bonus depreciation)
$4,900 2nd yr.
2,950 3rd yr.
1,775*
$3,160 ($11,160 if 100% eligible for bonus depreciation)
$5,100 2nd yr.
3,050 3rd yr.
1,875*
* For each succeeding tax year in its recovery period

101. §179 Deduction Annual dollar limit 2013 $500,000 2014 $25,000
Asset addition limit (before phase-out)
$2,000,000
$200,000
For 2014 and later, depreciable computer software will no longer qualify as §179 property.

102. §179 Deduction Revocation via amended tax return
Late election via amended tax return [Reg. § (c)]
Effective tax years beginning in 2003
Currently allowed through 2013
Recapture of §179 Expensed Amounts

103. §179 Deduction
If a taxpayer claims expensing deduction and subsequently the property is not used predominately for business, part of the deduction may be subject to recapture.  

104. §179 Deduction
Example: Browne, a calendar-year taxpayer, bought and placed in service in his business - February 15, , five-year property costing $5,000.
Expensing deduction of $5,000 for the property.
The property was used entirely for business for all of 2011 and 2012.
In 2013, he used the property for personal purposes.
The expensing benefit claimed in 2011 is recaptured (added to taxable income).

105. §179 Deduction 2011: $5,000 x 20% = $1,000 2012: $5,000 x 32% = $1,600
Expensing deduction claimed in $5,000
Allowable depreciation deduction
in lieu of expensing:
2011: $5,000 x 20% = $1,000
2012: $5,000 x 32% = $1,600
2,600
2013: Recapture amount
2,400

106. $25,000 Vehicle §179 Limit
>Applicable to highway vehicles with a 6,000 lb gross vehicle weight but not > 14,000 lb. except:
Vehicles seating over 9
Vehicles with cargo area > 6 ft. box for use as an open area
Vans with driver-only seating
For the vehicles excepted, there is no limit on the §179 Limit

107. Tax Deduction for Energy Improvements to Buildings
For property place in service after 1/31/2005 and 1/1/2014
Taxpayers who own or lease commercial buildings and install property as part of buildings' interior
Before claiming Taxpayer must attain a certification that these items are being installed as part of a plan designed to reduce the total annual energy and power costs for interior lighting, heating, cooling, ventilation and hot water systems of the building by
50% compared to a “reference building”

108. Energy Improvements to Buildings
Partially qualifying commercial building property is that which fails to achieve the 50% reduction in energy and power costs required
Deduction is allowed for energy efficient commercial building property installed as part of that system and as part of a plan to meet those targets,
However, alternative energy savings percentages permitted are 20% for the interior lighting system and the heating, cooling, ventilation, and hot water systems, and 10% for the building envelope

109. Questions, Wrap-Up, and Key Points/Lesson Review

110. Capitalized Costs and Depreciation
Thank you for attending!