Transcript Depreciation

Depreciation
4065 Depreciation
Leanne Brown
What is depreciation
• Spread the cost of an asset over
its life.
• Used in income tax: assets that
can be depreciated can not be
deducted the year of its
purchase.
What can be
depreciated
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Machinery
Livestock
Orchards
Equipment
Farm buildings
• Anything that can be used for more
than one year.
Can you list some items
that can be depreciated?
Why are the assets written
off over a longer period?
• Because they provide a service
for several years
What causes a loss of
value from an asset over
time?
• Wear and tear do to use
• Out dated because of new
technology
• Wear and tear from nature
What can be
depreciated
• Property that is subject to wear
and tear during production
• Farming assets with a useful
life over one year
• Assets must have a determined
useful life.
• Land can not be depreciated
Where do I start?
• There are three things to determine
before you start
• Basis: cash paid or cash paid after
trade in
• Service Date: when was it placed into
service
• Method: method of depreciation used
Cost are recovered over
a…
• 3, 5, or 15 year period
• 3 year: cars, trucks, tools,
breeding swine, some race horses
• 5 year: machinery and equipment,
breeding livestock, single purpose
structures, fences, heavy trucks
• 15 year: buildings and barns
Two ways to calculate
Depreciation
• Straight line
• Accelerated cost recovery
system
Straight line method
• In a 3 year plan you can have a
recovery period of 3, 5, or 12
years
• In a 5 year: 5, 12, or 25 years
• In a 15 year: 15, 35, or 45 years
Accelerated cost
recovery system
• 3 year
• 25% 1st year
• 38% 2nd year
• 37% 3rd year
• 5 year
• 15% 1st year
• 22% 2nd year
• 21% 3rd year
• 21% 4th year
• 21% 5th year
• 15 year
• 5% 1st year
• 10% 2nd year
• 9% 3rd year
• 8% 4th year
• 7% 5th year
• 7% 6th year
• 6% 7th through 15th year