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Video instructions and help with filling out and completing How Form 2220 Depreciated

Instructions and Help about How Form 2220 Depreciated

Welcome my name is Marci Hampton and I'm a faculty member at the UCF Dixon school of accounting in this short lecture I'm gonna talk about makers depreciation this is video 3 of a 3 video set this video will deal with section 179 and bonus depreciation on tangible personal property with tangible personal property we have the ability to expense assets under what we call section 179 of the Internal Revenue Code this is an election that we can make to immediately expense an assets cost or part of its cost instead of depreciating it over several years this is of course subject to limits section 179 is only available on tangible personal property not real property you will also note that there is an annual election that we make on the property placed in service in the current year and is only available in the year that we place the asset in service so what is the maximum amount that is allowed to be expensed under section 179 this amount you will find changes every year for 2022 through 2022 the maximum amount that you could expense under section 179 was $500,000 as of January 1st of 2022 the limit was reduced back down to 25,000 that is likely to be extended back up to 500,000 before the end of 2022 but at the time of this video and it's still not yet been extended please note that the limit for section 179 is per taxpayer per year not per asset and it can be split over several assets as desired so further limits that we have for section 179 the first of which is what we call the ceiling or threshold limitation we have a ceiling or threshold that we cannot exceed if we place more than the ceiling limitation in service of tangible personal property during the year then the access over that threshold will reduce the maximum section 179 dollar for dollar for example in 2022 through 2022 when the maximum section 179 deduction allowed was 500 thousand the threshold or ceiling limitation was two million dollars that meant that if you placed more than two million dollars worth of tangible personal property in service during the year the amount that you exceed that two million would reduce the 500 thousand dollar deduction ability dollar-for-dollar note that right now in 2022 when the maximum section 179 is 25 thousand the threshold or ceiling limitation is two hundred thousand in addition the second limitation is what we call the taxable income limitation you must have enough taxable income before deducting the section 179 to cover them in other words section 179 cannot be used to create a loss for the year you can decide to expense more under section 179 on a particular asset than can be deducted in the current year and that can be carved forward to the next year when you can deduct it in addition we have an additional limitation for SUVs sport utility vehicles between 6,000 and 14,000 pounds the maximum section 179 for the year on the Ness UV is $25,000 right now when the maximum limit for section 179 is 25,000 that does not become an additional limitation however even if the maximum section 179 is increased back up to 500,000 the maximum section 179 deduction for the year on an SUV will remain at 25,000 so what effect does taking a section 179 deduction have on the depreciable basis of an asset the depreciable basis is going to be reduced by any amount that you expense under section 179 that way the balance of the depreciable basis is what we'll use to calculate the regular makers depreciation once you've expensed it it's already done let's do an example in for it using section 179 if a taxpayer requires two pieces of equipment both five-year property during the year one on to 1514 for 400,000 and the other on 320 of 14 for 300,000 and wants to deduct as much via section 179 as possible and their taxable income before section 179 deduction is 750 thousand here's what happened for the year 1 depreciation asset 1 which cost 400,000 can all be expensed under section 179 that gives us 400,000 section 179 since we have not exceeded the ceiling or threshold limitation of 2 million dollars the total that we placed in service of tangible personal property is the total of the two assets and a total of 700,000 we still have another $100,000 that we can take in section 179 deduction so on asset to which costs 300,000 we can take another hundred thousand dollars worth of section 179 off of that asset now bringing us to the maximum $500,000 worth of section 179 that we can take that will still leave us a depreciable basis of 200,000 on asset 2 we will then use that 200,000 depreciable basis to calculate the regular makers as we did in video 2 if you look in the table under five-year property for tangible personal property using the half year convention for year 1 recovery you will see that the rate is 20 percent 20 percent of 200,000 would give us another 40,000 regular makers depreciation therefore we would have a total depreciation for the year of 540 thousand dollars in addition to section 179 the government has also in recent years put in an additional first year depreciation that we are able to take called bonus depreciation this came about as part of the 2022 economic stimulus package what it does is it allows us to take an additional 50 percent of the basis as bonus depreciation during the first year placed in service please note however that additional first year bonus depreciation is only available on new tangible personal property that is placed in service during the year if you choose to buy used tangible personal property that is not available for bonus depreciation section 179 you can.

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