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8/7/2019 TaxHelp

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Review Guide w/ Tables for Depreciation & Taxes

8/7/2019 TaxHelp


All Depreciation Methods

BV j = BV 0 D1 D2 �� Dj

BV j = BV j -1 Dj

BV j u SV

Straight Line

Dj = (IC SV ) / n , j = 1, 2, «, n

Declining BalanceDBR = 100%, 125%, «, or 200% (double)

p = DBR / n

Dj = pBV j -1 , j = 1, 2, «, n, while BV j u SV

asic Non-Macrs Depreciation

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Any s itc

Tr t c rr nt V s IC nd r m ining years f r ec ver y as depr eciati n lif e

SL Depr (c rr ent BV ± S V ) / ( emaining Yrs)

Optimal s itc f r

S

V and c nstant tax r ate S T S itc Time First Integer u n n /DBR

DS T +1 �� Dn (BV S T ± S V ) / (n ± S T )

If SV { r tax r ate not constant, t en se trial-and-err or to determine time to s itc

DB to SL S witch

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1. Use table to determine property class and

recovery period2. Use tables to obtain recovery rates r j

3. j = r j BV 0 until end of recovery or disposal,

and then j = 0

4. Early disposal

a) Personal property: Before last yr in table

j = 0.5 r j BV 0

b) Real property: Before mid-month of purchase plus recovery period

j = (Mid-disposal-month / 12) r j BV 0

MACR S

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n Examples of Assets

3 Special andling devices f or f ood and ever age manuf actur e

Special tools f or manuf acturing f abricated metal, motor vehicles, r ubber, glassTr uck tr actors and r acehorses

5 Computers and peripher als, office machiner y

esearch and experimentation equipment

Oil and gas drilling, constr uction, appar el manuf acturing equipment

Cars (subject to limits), tr ucks, and buses

7 Any item not placed in a specific pr operty classOffice f ur nitur e and equipment such as desks, files, or saf es

achiner y f or ood pr oducts and f ur nitur e Oil and gas explor ation and pr oduction equipment

Waste r eduction and r esource r ecover y plants

10 ocks and ship building equipmentEquipment f or gr ain, sugar, and vegetable oil pr oducts

ur able goods manuf acturing and oil r efining equipment

15 Pipelines

unicipal astewater tr eatment plantsand impr ovements such as shr ubber y, f ences, or r oads, but not land itself

20 Electric, gas, water and steam utilities

27.5 esidential r ental pr operty (excludes hotels and motels)

39 Nonr esidential r eal pr operty

MACR S Personal Property Classes

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j n=3 n= n= n=10 n=15 n= 0

1 33.33 0.00 14. 9 10.00 .00 3.7

44.45 32

.00 24.49 18.00 9. 0 7.

22 3 14.81 19.20 17.49 14.40 8. 6.68

4 7.41 11.52 12.49 11. 2 7.70 6.18

11. 2 8.93 9.22 6.93 .71

6 .76 8.92 7.37 6.23 .29

7 8.93 6.55 5.90 4.89

8 4.46 6. .90 4.2 9 6. 6 .91 4.46

10 6. .90 4.46

11 3.28 .91 4.46

12 .90 4.46

13 .91 4.46

14 .90 4.4615 .91 4.46

16 2.9 4.46

17 4.46

18 4.46

19 4.46

20 4.4621 2.23

Personal Property Recovery Rates (%)

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Month in Which Placed in Service n 27.5

1 2 3 4 5 6 7 8 9 10 11 12

j 1 3.485 3.182 2.879 2.576 2.273 1.970 1.667 1.364 1.061 0.758 0.455 0.152

2-9 3.636 3.636 3.636 3.636 3.636 3.636 3.636 3.636 3.636 3.636 3.636 3.636

Even 10-26 3.637 3.637 3.637 3.637 3.637 3.637 3.636 3.636 3.636 3.636 3.636 3.636

Odd 11-27 3.636 3.636 3.636 3.636 3.636 3.636 3.637 3.637 3.637 3.637 3.637 3.637

28 1.970 2.273 2.576 2.879 3.182 3.485 3.636 3.636 3.636 3.636 3.636 3.636

29 0.152 0.455 0.758 1.061 1.364 1.667

n 39 1 2 3 4 5 6 7 8 9 10 11 12

j 1 2.461 2.247 2.033 1.819 1.605 1.391 1.177 0.963 0.749 0.535 0.321 0.107

2-39 2.564 2.564 2.564 2.564 2.564 2.564 2.564 2.564 2.564 2.564 2.564 2.564

40 0.107 0.321 0.535 0.749 0.963 1.177 1.391 1.605 1.819 2.033 2.247 2.461

Land is never depr eciated, only the buildings

Real Property Recovery Rates (%)

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1. The $250,000 limit is reduced on a dollar-for-dollar

basis as total purchases during a year exceed$800,000.

2. The full Section 179 expense always is subtracted froman asset¶s basis before depreciating with ACRS.

3. The ACRS depreciation charge is deducted first fromTI, and then the expense. Any portion of the expensethat would drive TI negative may be carried over to

following years.

S ection 179

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Bonus Depreciation

1. Adjust basis by subtr acting any Section

179expense

2. If 50% bonus depr is allowed f or year 1, then

Bonus epr 0.50 (Adjusted Basis)

3. Adjust basis again by subtr acting the bonusdepr

4. Multiply adjusted basis by MAC S r ecover y r ates

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1. Cost epletion (C )

a) CDj

Pr odj v ( esource Cost / Lif etime Pr od)

b) esource cost excludes land

2. Percentage epletion (P )

a) Select depletion percentage p fr om table

b) Compute gr oss income GIj Pricej v Pr odj

c) Trial j p GIj

d) U pper j 50% v (GIj Non-Depl Expensej )

e) PDj min(Trialj , Upper j )

3. Final epletion (F )

a) FDj max(C j , P j )

b) Except timber which uses C only

Depletion

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atural Resource %

Borax, carbon dioxide produced fro a well,granite, li estone, arble, ollusk shells,potash, slate, and soapstone

14

oal, lignite, sodiu chloride 10

ra el, sand, and stone (other thandi ension or orna ental stone)

5

Oil and natural gas (s all producers) 15

Sulphur and uraniu 22 .S. production of asbestos, lead ore, ica,nickel ore, and zinc ore

22

.S. production of certain oil shale, copper,

iron ore, gold, and sil er

15

Percentage Depletion Allowances

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Section 1231 assets include most pr oject equip-

ment that is depr eciated Section 1245 mostly MAC S personal pr op

Section 1250 primarily MAC S r eal pr op

GLD AR BV d

For Section 1231 losses and gains during tax yr

Net 1231 7Gain1231 7Loss1231

If net Section 1231 loss, deduct it fr om OI

If net Section 1231 gain, tr eat as capital gain

Recaptur es: tr eat as OI w/o f urther consider ation

Taxation of S ection 1231 Properties

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Section 1245

Post-1986 Section 1250

BV0

BVd

Gain1231 AR - BV0

Recapture AR - BVd

Loss1231 BVd - AR

Recapture BV0 - BVd

BVd

Loss1231 BVd AR

Gain1231 AR BVd

Effects of Different ARs of 1231 Properties

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Tax regulations inter pr et the tax code

TI OI s GLDs

Major types of taxpayers

Individual have AGI GI ±Adjustments

OI AGI ± Deductions ± Exemptions

Cor por ate OI Revenues ± Expenses

Pr oject Expenses Op costs + Depr + Depl + Sec 179 + Inter est

Flow-thr ough entities

Sole pr oprietor, partnerships, and Sub S cor ps

File r eports, paid by individuals

Tr usts and estates: usually no pr oject activities

Overview of Taxation

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GI } All Individual Income + Proj ev Proj Exp

AGI = GI Adjustments Interest on student loans, payments into

qualified retirement plans, contributions tocafeteria plans, alimony

Standard deductions for 2008

Single: $5,450 (single)

Married, filing jointly: $10,900

Choose max (standard, itemized)

Exemption for 2008

$3,500 for each dependent, including taxpayer

I ndividual Taxes: GI, Ad j ust , Deduct , and Exempt

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Bracket Tax

0 e OI e 8,025 10% v OI 8,025 < OI e 32,550

802.50

+ 15% v (OI 8,025) 32,550 < OI e 78,850

4,481.25

+ 25% v (OI 32,550)

78,850 < OI e 164,55016,056.25

+ 28% v (OI 78,850)

164,550 < OI e 357,700

40,052.25

+ 33% v (OI 164,550)

357,700 < OI103,791.75

+ 35% v (OI 357,700)

I ndividual Tax S chedule

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Bracket Tax

0 e OI e 16,050 10% v OI 16,050 < OI e 65,100

1,605.00

+ 15% v (OI 16,050) 65,100 < OI e 131,450 8,962.50

+ 25% v (OI 65,100)

131,450 < OI e 200,30025,550.00

+ 28% v (OI 131,450)

200,300 < OI e 357,70044,828.00

+ 33% v (OI 200,300)

357,700 < OI 96,770.00

+ 35%v

(OI 357,700)

Married Tax S chedule ( Filing Jointly )

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Only individuals have adjustments, exemptions,

and standar dized or itemized deductionsOI Revenues Expenses, excluding GLDs

TI OI s GLDs

If cor por ation has net Section 1231 losses, then tr eat each pr oject's GLD as OI

If cor por ation has net Section 1231 gains, little or no err or by tr eating each pr oject's GLD as OI

Reasonable appr oach f or cor por ations

Not case f or individuals

Corporate Taxes

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Irr egular pr ogr ession due to compr omises

Some br acket incr eases ³delayed´ and then

made up with ³surchar ges´

Between

0 50,000 75,000

100,000

335,000 10,000,000 15,000,000 18,333,333

g

Pay Plus

0 15% 7,500 25%

13,750 34% 22,250 39%

113,900 34% 3,400,000 35% 5,150,000 38%

6,41

6,667 35%

Corporate Tax S chedule

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Use mar ginal r ates, not aver age r ates

Combined mar ginal tax r ate

State deductible fr om f ed

TRS + TRF(1 ± TRS)

Mutually deductible

(TRS + TRF 2 TRS TRF) / (1 TRS TRF)

ATCF BTCF Tax payments + Tax savings

Rough estimate AT IRR } BT IRR v (1 ± TR) Analyses based on ATCF's use the AT AMRR

BTCF analyses utilize the BT AMRR.

After Tax Analyses

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Yr BT Dep / B OI Tax AT

0 -I I Adj -I

1 BT1 D1 BT1 D1 OI1 t OI BT1 Tax1

j BTj Dj BTj Dj Oij t OI BTj Taxj

n BTn Dn BTn Dn Oin tOI BTn Taxn

n AR B 0 7Dj AR B n LD tD AR TaxD

B n LD

B 0

ATCF for Purchases

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Yr BTCF Dep / BV OI Tax ATCF

Sell MV BV MV - BV GL0 tD MV- TaxD,0

0 - ATCFSell 1 BT1 D1 BT1- D1 OI1 t OI BT1- Tax1

j BTj Dj BTj - Dj OIj t OI BTj - Taxj

n BTn Dn BT3 - D3 Oin tOI BTn - Taxn

n AR BV - 7Dj AR - BVn GLn tD AR- TaxD,n

BVn GLn GLDn

BV today

GL0 GLD0 MV today

ATCF for Disposals

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CGL gains and losses on disposals of capital

assets, such as stocks or bondsSpecial tax r ates and r ules

Net Section 1231 position tr eat each pr oject¶sGLD as a CGL

Holding period

Short-term is a year or less

Long-term is longer than a year

Sum (net) short-term and long-term separ ately

SNL or SNG Short-term net loss or gain

LNL or LNG Long-term net loss or gain

Capital Gains and Losses

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Taxes based on consolidated gains or losses

Long TermShortTerm LNL $0 LNG

SNL LCL LNL SCL SNL

SCL

SNL

LNG u SNL

LCG LNG SNL SNL > LNG SCL SNL LNG

$0 LCL LNL --- LCG LNG

SNG

SNG u LNL SCG SNG LNL

LNL > SNG

LCL LNL

SNG

SCG

SNG

LCG LNGSCG SNG

Consolidated Capital Gains ( CG) and Losses ( C L)

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G / L Ter Treat ent

Gain Short Taxed as OI.

Gain Long irst, any portion of the gain in theOI 10% or 15% bracket is taxed at5%. Any re ainder abo e the OI15% bracket is taxed at 15%.

Loss Either p to 3,000 ay be deducted froOI in the current year, and there ainder ay be carried forwardindefinitely. A loss re ains a SCL or LCL when it is carried forward.

Capital Gains Taxes for I ndividuals

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G / L Term Tr eatment

Gain Short Taxed as OI.

Gain Long Taxed as OI, up to a maximum of 35%.

Loss Either No deduction may be made fr om OI.Carr y a loss back f or up to 3 years to claim r ef unds on any CG taxes in those years, or carr y it f or war d up to 5 years to r educe a f utur e CG. Any amount carried back or f or war d always is classified as a

SCL, even if it was originally a LCL. Thisis diff er ent fr om an individual's CL.

Capital Gains for Corporations

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T y p e ?

N e t S e c t io n 1 2 3 1 g a in s a n dlo s s e s . R e c a p t u r e a n y p r io r

1 2 3 1 lo s s e s .

C o n s o l id a t eC G L s

N e t g a in o r lo s s ?

D e d u c t n e tS e c t io n 1 2 3 1

lo s s f r o m O I

C o m p u te S e c t io n 1 2 4 5 o r 1 2 5 0 r e c a p tu r e . T a x a s O I.

C o m p u t e S e c t io n 1 2 3 1 g a ino r lo s s o n p r o j e c t .

C S C G : T a xe d a t O I r a t e

C L C G : In d i v - T a xe d a t C G r a t e

C o r p - T a xe d a t O I o r 3 5 % r a t e

C S C L : In d iv - D e d u c t u p t o $ 3 ,0 0 0 a n d t h e n c a r r y a s S C L

C o r p - C a r r y a s S C L

C L C L : In d iv - D e d u c t u p t o $ 3 ,0 0 0 a n d t h e n c a r r y a s L C LC o r p - C a r r y a s S C L

G a in

L o s s

C o m p u t e C G Lo n p r o j e c t

N e t a l l C G L s

S e c t io n 1 2 4 5o r 1 2 5 0

C a p i ta lA s s e t

T r e a t n e t 1 2 3 1

g a in a s L C G

Disposal Logic With Capital Gains

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Gain or loss position prior to a proj ect can aff ectthe amount of its tax payment or tax savings, as

well as the timing of that cash flow

If the position is known at the time of the analysis, then it should be r ecognized

If position is not known

Examine likely scenarios

Always in a gains position and business as

usual, then that position is most likely Special circumstances can simplif y analyses

Cor por ation in 35% or less br acket w/ only Section 1231 losses and gains, then tr eat any gain or loss on disposal as OI

Effect of Gain or Loss Position on Taxes

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AR Tax Tr eatment

AR < BVd Section 1231 loss BVd AR AR BVd $0 Section 1231 gain or loss

BVd < AR e BVd + Acc Section 1250 r ecaptur e AR BVd

BVd + Acc < AR e BV0

Section 1250 r ecaptur e Acc

Section 1

231

gain AR

(BVd +

Acc) Unr ecaptur ed depr eciation AR (BVd + Acc)

BV0

< AR Section 1250 r ecaptur e Acc

Section 1231 gain AR (BVd + Acc)

Unr ecaptur ed depr eciation BV0

(BVd

+ Acc)

Pre-1986 Tax Categories for S ec 1250 Disposals

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