Archive for 'Depreciation'

Proposed Rules Address 100-Percent Depreciation Deduction
 
Proposed regulations address the new 100-percent depreciation deduction that allows businesses to write off most depreciable business assets in the year they are placed in service. Background The Tax Cuts and Jobs Act (TCJA) ( P.L. 115-97) amended Code Sec. 168(k) to increase the percentage of the additional first year depreciation deduction from 50 percent to 100 percent for property acquired after September 27, 2017. It also expanded the property eligible for the additional first year depreciation to include certain used depreciable property and certain film, television, or live theatrical productions. Generally, the 100-percent depreciation deduction generally applies to depreciable business assets with a recovery period of 20 years or less and certain other property. Such assets include in part machinery, equipment, computers, appliances, and furniture. The proposed regulations provide guidance on what property qualifies for the deduction, and rules for qualified film, television, live theatrical productions and certain plants. Property of a Specified Type In order to be considered qualified property, the proposed regulations require that property must be:
  • MACRS property that has a recovery period of 20 years or less;
  • computer software as defined in, and depreciated under, Code Sec. 167(f)(1);
  • water utility property as defined in Code Sec. 168(e)(5);
  • a qualified film or television production as defined in Code Sec. 181(d);
  • a qualified live theatrical production as defined in Code Sec. 181(e); or
  • a specified plant as defined in Code Sec. 168(k)(5)(B) and for which the taxpayer has made an election to apply Code Sec. 168(k)(5)(B).
Qualified improvement property acquired after September 27, 2017, and placed in service after September 27, 2017, and before January 1, 2018, also is qualified property. Placed-in-Service Date The proposed regulations provide that qualified property must be placed in service by the taxpayer after September 27, 2017, and before January 1, 2027, or before January 1, 2028, in the case of certain aircraft property described in Code Sec. 168(k)(2)(B) or (C). For specified plants, if the taxpayer has made an election to apply Code Sec. 168(k)(5), the proposed regulations provide that the specified plant must be planted before January 1, 2027, or grafted before January 1, 2027. The proposed regulations also provide that a qualified film or television production is treated as placed in service at the time of initial release or broadcast as defined under Reg. §1.181-1(a)(7). Further, a qualified live theatrical production is treated as placed in service at the time of the initial live staged performance. Acquisition Date The proposed regulations provide the date of acquisition rules for different types of property, including self-constructed qualified film, television, or live theatrical productions, and specified plants. Under the proposed regulations, the property must be acquired by the taxpayer after September 27, 2017, or acquired by the taxpayer pursuant to a written binding contract after September 27, 2017. The proposed regulations also provide that property that is manufactured, constructed, or produced for the taxpayer by another person under a written binding contract that is entered into before the manufacture, construction, or production of the property for use by the taxpayer in its trade or business or for its production of income is acquired pursuant to a written binding contract. For self-constructed property, the proposed regulations provide that the acquisition rules are met if the taxpayer begins manufacturing, constructing, or producing the property after September 27, 2017. The proposed regulations provide that a qualified film or television production is treated as acquired on the date principal photography commences. Qualified live theatrical production is treated as acquired on the date when all of the necessary elements for producing the live theatrical production are secured. These elements may include a script, financing, actors, set, scenic and costume designs, advertising agents, music, and lighting. For a specified plant, the proposed regulations provide that the specified plant must be planted after September 27, 2017, or grafted after September 27, 2017, to a plant that has already been planted, by the taxpayer in the ordinary course of the taxpayer’s farming business. Elections The proposed regulations provide rules for making the election out of the additional first year depreciation deduction. Taxpayers who elect out of the 100-percent depreciation deduction must do so on a timely-filed return. Those who have already filed their 2017 return and either did not claim the mandatory deduction on qualifying property, or did not elect out but still wish to do so, will need to file an amended return. Applicable Date These regulations apply to qualified property placed in service or planted or grafted, as applicable, by the taxpayer during or after the taxpayer’s tax year that includes the date that the regulations are adopted as final. Pending the issuance of the final regulations, a taxpayer may choose to apply the proposed regulations to qualified property acquired and placed in service or planted or grafted, as applicable, after September 27, 2017, by the taxpayer during tax years ending on or after September 28, 2017.

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Special Report - How Depreciation Benefits Real Estate Investors and Business Owners

First of ALL: Do NOT Allow Yourself To Feel Bad about not knowing.

When I began my real estate business, I did not understand "depreciation" until I saw the huge benefits at tax time.

Then I really began to pay attention.
 
Depreciation: A non-cash expense that reduces the value of an asset as a result of wear and tear, age, or obsolescence. Most assets lose their value over time (in other words, they depreciate), and must be replaced once the end of their useful life is reached.
 
There are several accounting methods that are used in order to write off an asset's depreciation cost over the period of its useful life.
 
Because it is a non-cash expense, depreciation lowers the company's reported earnings while increasing free cash flow.
 
Simple Example:
Suppose a painter buys an extension ladder for $1,000.00 and let's assume the life of the ladder is 10 years. Although the painter is out $1,000 cash out of pocket right now in his purchase of the ladder, he can only “write off” $100 per year for 10 years because the ladder has an expected life of 10 years. On top of this, the ladder will probably be worth ZERO at the end of the 10 year period.
 
CHECK THIS OUT:
 
With real estate, we sort of get to do the same thing like the ladder.
 
You can NOT depreciate DIRT. It lasts forever; however, the things built on the dirt, buildings and improvements have an expected life according to Uncle Sam.
 
RESIDENTIAL Real Estate improvements depreciate on a 27.5 year schedule.
 
COMMERCIAL is on a 39 year schedule.
 
What’s beautiful about real estate involves it usually holds it value and sine we are at the bottom of the real estate market now, it will almost go UP IN VALUE again… and not down in value like the poor old painter’s ladder.
 
Example 1
• Contractor Buys $10,000 Gutter Machine
Life of Gutter Machine = 10 years (example)
Contractor does NOT get to write off 10k the year of his purchase.
Contractor gets to write off 1k for 10years.
the remaining 9k is carried on his books as an asset and gets reduced 1k each year until it reaches zero.
 
Example 2
Investor with 10 yr Rental bought for $80,000
You generally cannot deduct, in one year, the entire cost of property you purchased, either for use in your trade or business or to produce income, if the property has a useful life substantially beyond the tax year.
 
Instead, you can depreciate it. That is, you can spread the cost over a number of years, and deduct a part of the cost each year.
The kinds of property that you can depreciate include machinery, equipment, buildings, vehicles, and furniture.
 
You cannot claim depreciation on property held for personal purposes.
If you use property, such as a car, for both business or investment and personal purposes, only the business or investment use portion may be depreciated.
You may depreciate property that meets all five of the following tests.
• It must be property you own.
• It must be used in a business or other income–producing activity.
• It must have a determinable useful life.
• It must be expected to last more than one year.
• It must not be excepted property. Excepted property (as described in Publication 946, How to Depreciate Property) includes certainintangible property, certain term interests, and property placed in service and disposed of in the same year.

 

To Your Continued Success!
 
Mike Butler

 

P.S. ALWAYS Check with your Tax Advisory and/or CPA before taking action.

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NOTES From Video
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80,000 dirt value is 5k
75k over Residential,..... 27.5 (25)
10 years..... Luke will give investor 150k this week for this house?
Fred Flintstone 3 Finger Depreciation Formula...
75k divided 25 yr = 3,000 year in depreciation
3k x 10 yrs = $30,000
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>>>> 80k minus 30k deprection = 50k cost basis...
Sell for 150k ..... capital gain of 100k
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INVESTOR NIGHTMARE STORIES
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Yes, you can be creative and accelerate depreciation pretty darn fast.
do this only if you need it NOW and Yesterday...
500k year.. AGI....
if you got 30k in depreciation,.. yes, accelerating it would be good for short term benefit.
100 year AGI....
300k annual depreciation... WHY WOULD YOU ACCELERATE IT?
My Battle Plan is to always add to my cost basis to keep bumping.
I want Depreciation to outlive ME..
a lot of investors, veteran, they bitch and moan and complain of paying too much income tax..
paid for, FRESH OUT OF WHAT?.... depreciation...
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When You Buy a Rental Property...
EVERYTHING YOU DO TO THIS PROPERTY BEFORE YOU PUT A TENANT IN IT
Becomes Part of the Cost of this investments...
50k.. and do 16,000 in Capitalized Expense Account
... at the end of year, tx into asset account.now your investment is 66k....

 

 

 

 

 

 

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