Straight line Election179 Expense ElectionsListed PropertyDepletable Natural ResourcesReporting ProceduresDepreciation, Cost Recovery, Amortization & DepletionTangible Property  Depreciated Macrs & AcrsHow physical Substancee.g. building, equipment, automobiles Intangible  Amortized (sec. 197 intangible 15 years) No physical substancee.g. goodwill, trademarks, patents, copyrights, franchisesNatural resources  depleted cost depletion, % depreciatione.g. oil, gas, coal, timber not landAssets must have a determinable useful life. I.e. land is not depreciable, amortizable or delectable.Assets must be used in trade or business – assets used for personal purposes not written off.Tangible AssetsAccelerated cost recovering systemACRS  after 12/31/80 to 12/31/86MACRS  post 12/31/86Different rules Personal property  any asset not realty Real property  land and buildings permanently affixedCost of assets recovered over predetermined period useful life for ease of administrationCost recovery allowed or allowable- Basis must be reduced even if depreciation deduction forgotten in a year Affects gain calculation upon scaleAssets converted to business use from personal  Take lover of adj. basis or FMV at time of conversionCost Recovery Periods (see p. 8-6 Ex. 8-1 for property classification)* ACRS: 3,5,10 year (fully depreciated)real property  1/11/87)85(after5/8/19year 6/22/85)after ( year 18prop.)utilty public (year 15 SL using mid month* MARCS:year 10year 7year 5year 32002 DB switch to SLSL switch to DB 150% year 20year 15month mid SL ) - (5/13/93 realestate nonres. -year 395/13/93) - (1/1/87realestat nonres. -31.5year estate real rental res.. -year 27.5- Cost basis applicable % (see tables)Conventions see concept summary p. 9-91 Real Property – Mid month conventionProperty considered placed in service at mid point of a month and sold a mid point no matter actual date.e.g. building purchased 2/3/99 for $100,000 year 1 depreciation 1210.5 x 39100,000 (or use table p. 8-36)100,000 x 2.247%2 Personal Property – Half-year convention or mid-quarter conventiona.) Half year – property placed in service in the middle of the first year andsold in the middle of the year and retired in the middle of the year e. g. car purchased 8/1/99 for $20,000 year 1 depreciation 20,000/5 x 200% x ½ = 4,000or 20,000 x .20 – 4,000year 2 depreciation20,000-4,000/5 x 200% - 6400year 3 sale 20,000 x 19.3% x ½ - 1920 or 20,000 – 4000- 6400 = 9600b.) mid quarter convention- use if >40% of value of property other than realty is placed in service during the last quarter of the year.- property acquisitions grouped by quarter1Q = 10.5 months cost recovery allowed2Q = 7.5 months3Q = 4.5 months4Q = 1.5 months- Properly treated as acquired midpoint of quarter & disposed/ retired at mid pointe.g. F&F purchased 12/1/99 = $10,000 year 1 depreciation 10,000/7 x 200% x 121.5 = $357 or 10,00 x 3.57% = $357year 2 depreciation10,000 – 357/7 x 2002 – 275510, 000 x 27.55% - 2755Straight line Election - use same class lifeACRS  election on property-by-property basisMCSS  election available on class-by-class basis and year-by-year basis179 Expense Elections Allows taxpayer to elect to writhe off up to $24,000 of the acquisition cost of a tangible personal property.1999 - $19,0002000 – 20,0002001 – 24,0002002 – 24,0002003 – 25,000Limitations:1 ceiling amount – dollar for dollar Reduction for property placed in service exceeding $200,0002. 179 expense cannot > taxable income (exclusive of 179 expense)  Any excess 179> taxable income carried forwardListed Property- Property used fro both business and personal use1. Used predominantly for business – 1.2. for business use >5-% use stationary % method for cost recovery2. Not used predominantly for business i.e. < 50% business used used SL recovery under ADSLimitations:1 passenger auto 15,250 cost yearly costly recovery limited to year 1 3060year 3 5000year 3 1775 Note: If MARS cal N above use MARCS3. Leased autos – taxpayer who leases must report an inclusion amount from IRS tables & can take a deduction – business use % x lease payments.Alternative Depreciation System (ADS)- used for AMT – 150% DDB- computed using straight line recovery system (property outside US)- taxpayers may elect straight live over 200% DB election available on class-by-class and year-by-year basis.Amortation of Intangible Property197 – any intangible acquired after 8/10/93 & held in connection with the conduce of a trade business amortized over 15 years beginning with moth of purchase. has to be purchased (not self created) e.g. goodwill, growing concern, franchise, and trademarks, patent, copyright, trade names, covenants not to be complete, and workforce dis regard actual life and use 15 yearsDepletable Natural Resources- oil, gas, timber, coal, gravel- for oil and gas well – 4 types of costs:1. Natural resources cost – recovered through depletion2. Intangible Drilling & Development Cost (IDC_- Costs incurred in making the property ready for drilling Either a charge off as expense year incurred or  Capitalized and written off through depletion3. Cost for tangible assets - Capitalized and depreciated4. Operation costs – cost incurred after well is producing – (expense as incurred.Depletion Methods:1 Cost depletion - adj. bases of assets – depletion amountest. recoverable units of assetsDepletion amount x number of units sold – cost depletion 2. % Depletion – specified % in code, which varies depending upon material type, see EX 8-2, p 8.23 Gross income x rate = % depletion but % depletion cannot > 50% taxable income before depletion.Reporting Procedures- Form 4562 for depreciation amount- Note cost recovery schedules are not required to be submitted with