How to use Tax Depreciation 2012 to save taxes!!

Tax Depreciation 2012 Part 1
By Jeffrey Brooks, CPA, CFP, MBA for Jbrooks Wealth Advisors, PC, a Professional CPA and CFP Firm jeff@jbrookswa.com 602-687-9900 x101

What’s New for 2012
Expiration of the increased section 179 deduction limits. For tax years beginning after 2011, the increased section 179 expense deduction limit and threshold amount before reduction in limitation will no longer apply. Also, the definition of section 179 property will no longer include certain qualified real property.
Expiration of the 100% special depreciation for certain property. The 100% special depreciation allowance will not apply to most property placed in service after December 31, 2011.
Expiration of the special depreciation allowance for GO Zone extension of property. The special depreciation allowance will not apply to specified GO Zone Extension property placed in service after December 31, 2011.
Expiration of the 7-year recovery period for motor sports entertainment complexes. Qualified motor sports entertainment complex property placed in service after December 31, 2011, will not be treated as 7-year property under MACRS.
Expiration of the 15-year recovery period for qualified leasehold improvement, restaurant, and retail improvement properties. Qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property placed in service after December 31, 2011, will not be treated as 15-year property under MACRS.
Expiration of the accelerated depreciation for qualified Indian reservation property. The accelerated depreciation of property on an Indian Reservation will not apply to property placed in service after December 31, 2011.


What are the changes from 2011 to 2012
2011 /2012
• Section 179 expense (2011) 500,000 (2012) 139,000
• Phaseout begins (2011)2,000,000 (2012)560,000
• 179 for real estate (2011)250,000 (2012) 0
• Bonus depreciation (2011) 100% (2012) 50%
• Autos first year (2011)3,060 (2012) 3,160
• Building improvements 15 years 39 years

What is ineligible for fast write off called Section 179 expensing?

Ineligible Property
• Land and Improvements
• Air conditioning and heating units
• Property outside the United States
• Property used for lodging
– Except for hotels and motels
• Leased property
– IRC Sec. 179 Expense
Maximum Amount Allowed
The history of Section 179 expense maximum dollars allowed:
2003 $100,000
2004 $102,000
2005 $105,000
2006 $108,000
2007 $125,000
2008 $250,000
2009 $250,000
2010 $500,000
2011 $500,000
2012 $139,000
26
IRC Sec. 179 Small Business
Phase out Threshold
2002 $200,000
2003 $400,000
2004 $410,000
2005 $420,000
2006 $430,000
2007 $500,000
2008 $800,000
2009 $800,000
2010 $2,000,000
2011 $2,000,000
2012 $560,000
27
Special Depreciation Allowance
Bonus Depreciation – Sec 168(k)
The History of Bonus Depreciation –
Date placed in service:
• Sep 11, 2001 through May 4, 2003 30%
• May 5, 2003 through Dec 31, 2004 50%
• Jan 1, 2005 through Dec 31, 2007 0%
• Jan 1, 2008 through Sep 8, 2010 50%
• Sep 9, 2010 through Dec 31, 2011 100%
• Jan 1, 2012 through Dec 31, 2012 50%

Special Depreciation Allowance
Original Use Defined (also known as bonus depreciation)
• The first use to which property is put
• Cost of reconditioned or rebuilt (used) property does not
qualify
• Additional capital expenditures (new) to recondition or
rebuild would qualify
• Property acquired for personal use, then placed in
service for business qualifies

What is the order to use the kinds of depreciation?
• IRC Sec. 179 is taken first
• Bonus depreciation on remaining basis
• MACRS on remaining basis

Information you need to know to avoid errors!Planning Pointers
• IRC Sec. 179 cannot create a loss
• Bonus depreciation does create a loss
• IRC Sec. 179 is available for used property
• Bonus depreciation is available for original use property
• IRC Sec. 179 can be used selectively
• Bonus depreciation is automatic
• Taxpayers can elect out but election applies to entire
class of assets
• Election must be made within 6 months of due date of
return not including extensions

Using the MACRS system for assets that are not depreciated by Section 179 or Bonus “Special Depreciation”

Different Classes under GDS
• 3-year property
– Tractor for over-the-road
– Race horses and other horses over 12 years old
• 5-year property
– Autos
– Computers and peripheral equipment
– Office machinery (copiers, calculators etc.)
– Breeding and dairy cattle
– Appliances, carpets, furniture in residential real property
• 7-year property
– Office furniture, fixtures (desks, files etc.)
– Agricultural machinery and equip
– Any property not in another class
• 10-year property
– Vessels, barges, tugs etc.
– Single purpose agricultural structure
– Trees or vines bearing fruits or nuts
• 15-year property
– Land improvements (landscaping, fences, roads etc.)
– Retail motor fuel outlets (including the convenience store)
– Qualified leasehold improvements (prior to 2012)
• 20-year property
– Farm buildings
• 27 ½ -year property
– Residential rental property
• 39-year property
– Nonresidential rental property

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About Jeffrey Brooks

Jeffrey Brooks, CPA, CFP, MBA since 1976 has specialized in helping clients save significant taxes, help businesses increase their cash flow, revenues and profits while increasing their control and satisfaction. Jeff and his accounting firm sincerely cares about the happiness of his clients.

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Address: 4647 N 32nd Street, Suite B245
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Phone: 602-292-2009
Email: jeff@jbrookswa.com