Calculating depreciation on a like-kind exchange or an involuntary conversion: temporary regulations have modified the rules for computing depreciation on exchanged or converted property. This article focuses on the use of the optional tables for like-kind exchanges and involuntary conversions.EXECUTIVE SUMMARY * For like-kind exchanges and involuntary involuntary adj. or adv. without intent, will, or choice. Participation in a crime is involuntary if forced by immediate threat to life or health of oneself or one's loved ones, and will result in dismissal or acquittal. INVOLUNTARY. conversions, annual depreciation on carryover carryover n. in taxation accounting, using a tax year's deductions, business losses or credits to apply to the following year's tax return to reduce the tax liability. (See: carryback) basis is split between the portion allocable al·lo·ca·ble adj. Capable of being allocated. Adj. 1. allocable - capable of being distributed allocatable, apportionable distributive - serving to distribute or allot or disperse to the relinquished re·lin·quish tr.v. re·lin·quished, re·lin·quish·ing, re·lin·quish·es 1. To retire from; give up or abandon. 2. To put aside or desist from (something practiced, professed, or intended). 3. property and to the replacement property. * Temp. Regs. Sec. 1.168(i)-6T(e) provides a transaction coefficient coefficient /co·ef·fi·cient/ (ko?ah-fish´int) 1. an expression of the change or effect produced by variation in certain factors, or of the ratio between two different quantities. 2. and other rules for applying the optional depreciation tables to exchanged and converted property. * Taxpayers can opt out opt intr.v. opt·ed, opt·ing, opts To make a choice or decision: opted for early retirement; opted not to go. of using the optional tables and compute To perform mathematical operations or general computer processing. For an explanation of "The 3 C's," or how the computer processes data, see computer. depreciation manually. ********** The Service issued Temp. Kegs. Sec. 1.168-6T in February February: see month. 2004 in the belief that taxpayers were inconsistently in·con·sis·tent adj. 1. Displaying or marked by a lack of consistency, especially: a. Not regular or predictable; erratic: inconsistent behavior. b. taking depreciation on property acquired in like-kind exchanges under Sec. 1031 and involuntary conversions under Sec. 1033. (1) The IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. was concerned that, for depreciation purposes, some taxpayers had been regarding the replacement property as a continuation of the relinquished (converted) property, while others had been considering it as new property, resulting in inconsistent Reciprocally contradictory or repugnant. Things are said to be inconsistent when they are contrary to each other to the extent that one implies the negation of the other. treatment. The new regulation generally requires treating the replacement property as a continuation of the relinquished property, to the extent of the carryover (exchanged) basis. In addition, it addressed other important issues, such as the (1) determination of the depreciation allowance under Temp. Kegs. Sec. 1.168(i)-6T(c), (2) treatment of passenger automobiles No invention has so transformed the landscape of the United States as the automobile, and no other country has so thoroughly adopted the automobile as its favorite means of transportation. under Temp. Kegs. Sec. 1.168(i)-6T(d) and (3) use of the optional depreciation tables (2) under Temp. Kegs. Sec. 1.168(i)-6T(e). This article focuses on the new rules for using the optional depreciation tables when applying the regulations to like-kind exchanges or involuntary conversions. (3) The new rules apply to a like-kind exchange or an involuntary conversion of MACRS See Modified Accelerated Cost Recovery System. MACRS See Modified Accelerated Cost Recovery System (MACRS). property for which the time of disposition and the time of replacement both occur after Feb. 27, 2004. The IRS initially provided guidance to taxpayers in Notice 2000-4, (4) which was considered interim guidance until the new regulation could be issued. (5) General Effect on Taxpayers Even a cursory cur·so·ry adj. Performed with haste and scant attention to detail: a cursory glance at the headlines. [Late Latin curs reading of the new regulation reveals how it restricts many of the tax planning Tax planning Devising strategies throughout the year in order to minimize tax liability, for example, by choosing a tax filing status that is most beneficial to the taxpayer. opportunities apparently available under Notice 2000-4. In addition, it makes recordkeeping more difficult and complex than before, as the new rules require taxpayers to bifurcate To divide into two. the basis of property received into an exchanged (or carryover) basis and an excess (boot) basis. The portion of the basis treated as exchanged basis is considered, in general, to be a continuation of the old asset for depreciation purposes. The portion deemed to be excess basis is treated as if it were a new asset, which results in the excess basis receiving a new life (i.e., a new recovery period) and depreciation method. In short, tax professionals will be hard-pressed hard-pressed adj. Experiencing great difficulty or distress: financially hard-pressed. hard-pressed Adjective 1. to argue that this guidance is taxpayer-friendly. For example, if the replacement property would normally have a longer life for MACRS purposes, the taxpayer has to convert to that life for the portion of the basis that is the exchanged (carryover) basis. The same is true in selecting the depreciation method. If the replacement property would normally have a less accelerated depreciation Accelerated Depreciation Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years of the life of an asset. Notes: The straight-line depreciation method spreads the cost evenly over the life of an asset. method, the taxpayer has to use that method for the portion of the basis that is the exchanged basis, even though the regulation treats the replacement property's exchanged basis as a continuation of the relinquished property for depreciation purposes. Use of Optional Tables The regulation's guidance on using the optional depreciation tables also reflects a pro-government bias. If taxpayers elect to use them to calculate depreciation, they will be at a comparative disadvantage In policy debate, a disadvantage (abbreviated as DA, and sometimes referred to as a Disad) is an argument that a team brings up against a policy action that is being considered. Structure A DA usually has four key elements. . Thus, it is generally to the taxpayer's benefit to opt out of using the optional tables for calculating depreciation on replacement property. Background Historically, tax advisers have often relied on the optional depreciation tables, rather than on the more tedious manual approach, because the tables simplified the calculations and were more time- and cost-efficient Adj. 1. cost-efficient - productive relative to the cost cost-effective efficient - being effective without wasting time or effort or expense; "an efficient production manager"; "efficient engines save gas" . The tables made it unnecessary to determine book value (the remaining undepreciated basis) each year, as this information was incorporated into the rates. Instead, each year, the calculation merely involved multiplying mul·ti·ply 1 v. mul·ti·plied, mul·ti·ply·ing, mul·ti·plies v.tr. 1. To increase the amount, number, or degree of. 2. Mathematics To perform multiplication on. the applicable rate times the original unadjusted basis Unadjusted Basis A basis used for depreciation purposes. Unadjusted basis uses the original cost of property or equipment without regard to salvage value. Notes: This method of calculating depreciation is used for ACRS and MACRS. . For example, for five-year MACRS property (assuming the half-year convention half-year convention The assumption for tax purposes that a newly acquired asset is placed in service halfway through the year regardless of when the asset is actually acquired and placed in service. applies) acquired for $10,000 and placed in service in January January: see month. 2001, the calculation for 2003 depreciation involved identifying the applicable rate from the table 6 for year 3 (0.192), and then multiplying the $10,000 undepreciated basis by this rate, thus making year-3 depreciation $1,920. By comparison, calculating the depreciation for 2003 by hand involved multiplying the remaining undepreciated basis by 200% of the straight-line straight-line adj. 1. Lying in a straight line. 2. Relating to a device whose linkage produces or copies motion in straight lines. 3. rate, which would require tax advisers to maintain a schedule of the asset's undepreciated basis. In this example, the tax professional would first determine the remaining undepreciated basis at the beginning of 2003 ($4,800), then compute depreciation as follows: $4,800 x 200% x 1/5 (straight-line rate) = $1,920. In addition, the tax preparer would need to determine when to switch to the straight-line method Noun 1. straight-line method - (accounting) a method of calculating depreciation by taking an equal amount of the asset's cost as an expense for each year of the asset's useful life straight-line method of depreciation , because it would yield a higher depreciation amount. (7) In the tables, (8) the conversion to straight-line is already incorporated into the rate. Exhibit 1 on p. 44 illustrates the alternative approaches for calculating depreciation for both five-year and seven-year MACRS properties, using an asset with an original unadjusted basis of $10,000 and assuming the half-year convention applies.
Exhibit 1: Comparison of optional table depreciation to manual
depreciation for property not involved in an exchange or
conversion
Calculations for seven-year MACRS property
Rate from Depreciation Accumulated
Year optional table expense depreciation
Original
cost
1 0.1429 $1,429 $1,429
2 0.2449 $2,449 $3,877
3 0.1749 $1,749 $5,627
4 0.1249 $1,249 $6,876
5 0.0893 $893 $7,769
6 0.0893 $893 $8,661
7 0.0893 $893 $9,554
8 0.0446 $446 $10,000
Adjusted Manual
Year basis calculation
Original $10,000
cost
1 $8,571 $10,000 x 2/1 *
2 $6,123 $8,571 x 2/7
3 $4,373 $6,123 x 2/7
4 $3,124 $4,373 x 2/7
5 $2,231 $3,124/3.5 yrs **
6 $1,339 $3,124/3.5 yrs
7 $446 $3,124/3.5 yrs
8 $0 $3,124/3.5 yrs *
* Half-year convention applied to rate to calculate
depreciation (i.e., divided by 2).
** Switch to straight-line.
Calculations for five-year MACRS property
Rate from Depreciation Accumulated
Year optional table expense depreciation
Original
cost
1 0.2 $2,000 $2,000
2 0.32 $3,200 $5,200
3 0.192 $1,920 $7,120
4 0.1152 $1,152 $8,272
5 0.1152 $1,152 $9,424
6 0.0576 $576 $10,000
Adjusted Manual
Year basis calculation
Original $10,000
cost
1 $8,000 $10,000 x 2/5 *
2 $4,800 $8,000 x 2/5
3 $2,880 $4,800 x 2/5
4 $1,728 $2,880/2.5 yrs **
5 $576 $2,880/2.5 yrs
6 $0 $2,880/2.5 yrs *
* Half-year convention applied to rate to calculate
depreciation (i.e., divided by 2).
** Switch to straight-line.
Effect of New Regulations on Optional Table Use Importantly, in the year of the exchange or conversion, the new regulation requires a separate depreciation calculation for: 1. Relinquished MACRS property in the disposition year. 2. Exchanged basis (relinquished property's carryover basis) of replacement MACRS property in the acquisition year (if acquired in the exchange or conversion year). 3. Excess basis of the replacement MACRS property in the acquisition year (if acquired in the exchange or conversion year). In the exchange or conversion year, the relinquished property is limited to a partial year of depreciation based on the applicable convention (e.g., half-year convention), and the replacement property's exchanged basis is also limited to a partial entitlement An individual's right to receive a value or benefit provided by law. Commonly recognized entitlements are benefits, such as those provided by Social Security or Workers' Compensation. for the year in which it is acquired. (9) Essentially, the new regulation intends to sprit the annual depreciation on the carryover basis between the portion allocable to the relinquished property and that allocable to the replacement property. There are several reasons for this, including the possibility (as mentioned above) that the replacement property may be subject to a longer recovery period, as well as a less accelerated depreciation method. In addition, if the replacement property is not placed in service in the same tax year as the relinquished property's disposition year, bifurcation Bifurcation A term used in finance that refers to a splitting of something into two separate pieces. Notes: Generally, this term is used to refer to the splitting of a security into two separate pieces for the purpose of complex taxation advantages. of depreciation allows for the deduction deduction, in logic, form of inference such that the conclusion must be true if the premises are true. For example, if we know that all men have two legs and that John is a man, it is then logical to deduce that John has two legs. of the depreciation attributable attributable emanating from or pertaining to attribute. attributable proportion see attributable risk (below). attributable risk to the replacement property's carryover basis in the acquisition year. Because of the above complications in determining the depreciation of the relinquished and the replacement properties, tax professionals cannot simply use the rates given in the optional depreciation tables. Rather, the rates must either be modified or an election made to opt out. Alternatives Available To assist tax professionals in making the necessary adjustments when using the optional tables, the new regulation explains how to calculate a "transaction coefficient," to be used to modify the rates in the optional tables for a like-kind exchange or an involuntary conversion. As mentioned above, an alternative to calculating the transaction coefficient is to opt out of using the optional tables altogether. This election is available whether or not the optional tables had been used for calculating the depreciation on the exchanged (relinquished) property. Thus, prior use of the optional tables is not binding. Alternative 1--modifying the optional table rate: The transaction coefficient has the effect of increasing the depreciation allowance to be recovered over the remaining recovery period of the asset. It is multiplied mul·ti·ply 1 v. mul·ti·plied, mul·ti·ply·ing, mul·ti·plies v.tr. 1. To increase the amount, number, or degree of. 2. Mathematics To perform multiplication on. by the applicable depreciation rate from the optional table. In the replacement year, the product of the previous calculation must be adjusted for the applicable convention. (10) Example: (11) Five-year MACRS property was purchased for $10,000 and placed in service in January 2001. The property was subject to the half-year convention and no elections were made. In December December: see month. 2003, the property (the relinquished property) was transferred in a like-kind exchange for used, seven-year MACRS property (the replacement property). For the exchange year, the new regulation requires splitting the depreciation between the relinquished property and the replacement property. To accomplish this, depreciation must be separately computed for each. Both properties are subject to the half-year convention; thus, each will be allowed a half-year's depreciation in the exchange year. For the relinquished property, using the optional tables would result in a $960 allowable depreciation deduction ($10,000 x 0.192 x 0.5). For the replacement property, the exchanged basis (the remaining undepredated basis) is $3,840 ($10,000-$2,000 (2001 depreciation)--$3,200 (2002 depreciation)--$960 (2003 depredation DEPREDATION, French law. The pillage which is made of the goods of a decedent. Ferr. Mod. h.t. )). However, because the replacement property is seven-year property, the regulation will not allow depredation of the remaining half-year of depreciation ($960). The regulation requires using the longer recovery period for the replacement property. In Example (1) of Temp. Regs. Sec. 1.168(i)-6T(e)(4), the exchange occurs in year 3 (2003) of the original property's five-year MACRS recovery period. According to according to prep. 1. As stated or indicated by; on the authority of: according to historians. 2. In keeping with: according to instructions. 3. the new regulation, to calculate the depreciation for the replacement property, the rate for year 3 from the optional table for seven-year property is used, because the property is treated "as if" it has already been depreciated Depreciated may refer to:
In the above example, the transaction coefficient is 1.6335 (1/(1 - 0.3878)), with x equaling the sum of the rates for years 1 and 2, or 0.3878 (0.1429 + 0.2449). The depreciation allowance for the replacement property for the exchange year is $549:0.1749 (year-3 rate from the seven-year table) x 1.6335 (transaction coefficient) x half-year convention x exchanged basis ($3,840). For each year after the exchange year, the taxpayer would multiply mul·ti·ply v. 1. To increase the amount, number, or degree of. 2. To breed or propagate. the applicable rate from the seven-year optional table by the transaction coefficient (1.6335) and the exchanged basis ($3,840). Exhibit 2 at right, Optional tables approach, illustrates these calculations. Alternative 2--electing out: Exhibit 2, Manual approach, illustrates the calculation without the optional tables. A comparison of the two approaches reveals that the transaction coefficient approach results in less depreciation per year until the final year. In the final year, it yields higher depreciation. As shown in the exhibits, year 8 depreciation is higher, because the transaction coefficient approach does not result in the asset being fully depreciated Fully depreciated An asset that has already been charged with the maximum amount of depreciation allowed by the IRS for accounting purposes. fully depreciated Of or relating to a fixed asset that has been depreciated to a book value of zero. by the end of year 8 (the final year), without an adjustment. To correct this, Temp. Regs. Sec. 1.168(i)-6(T)(e)(2)(iii) (12) permits a deduction of any remaining undepreciated cost in the asset's final year.
Exhibit 2: Comparison of depreciation calculation approaches
for a like-kind exchange of a five-year for a seven-year
MACRS property.
Optional tables approach
Five-year
MACRS table
Year rate
Original
cost (year)
1 2001 0.2
2 2002 0.32
3 2003 0.192 *
Seven-year
MACRS table Transaction
rate coefficient
Exchanged
basis (year)
1 2001 0.1429
2 2002 0.2449
3 2003 0.1749 * 1.6335
4 2004 0.1249 1.6335
5 2005 0.0893 ** 1.6335
6 2006 0.0892 1.6335
7 2007 0.0893 1.6335
8 2008 0.0446 1.6335
Unrecovered 2008
basis
Annual Undepreciated
depreciation basis
Original $10,000
cost (year)
1 $2,000
2 $3,200
3 $960 $3,840
Exchanged 3,840
basis (year)
1
2
3 $549 ***
4 $783 ***
5 $560 ***
6 $560 ***
7 $560 ***
8 $280 *** $548
Unrecovered $548
basis
* Half-year convention applied to rate to calculate depreciation
(i.e., divided by 2).
** Switch to straight-line.
*** Exchanged basis x table rate x transaction coefficient.
Manual approach
Depreciation Annual
Year calculation depreciation
Original
cost (year)
1 2001 $10,000 x 2/5 * $2,000
2 2002 $8,000 x 2/5 $3,200
3 2003 $4,800 x 2/5 * $960 *
Exchanged
basis (year)
3 2003 $4,800 ** x 2/7 * $686
4 2004 $3,154 x 2/7 $901
5 2005 $2,253/3.5 *** $644
6 2006 S2,253/3.5 $644
7 2007 $2,253/3.5 $644
8 2008 $2,253/3.5 * $322
Annual
difference
between manual
Depreciable and optional
basis approaches
Original $10,000
cost (year)
1 $8,000
2 $4,800
3 $3,840
Exchanged $3,840
basis (year)
3 $3,154 $137 (25%)
4 $2,253 $118 (15%)
5 $1,609 $84 (15%)
6 $966 $84 (15%)
7 $322 $84 (15%)
8 $0 ($506) (-181%)
* Half-year convention applied to rate to calculate depreciation
(i.e., divided by 2).
** $3,840 + $960, per Temp. Regs. Sec. 1.168(i)-6T(c)(5)(ii)(A)(2).
*** Switch to straight-line.
Difference between alternatives: Exhibit 2 shows that the difference in the annual depreciation between either modifying the optional table rate or electing out is greatest in the initial year, because an additional $137 depredation occurs by opting out of the transaction coefficient approach (the manual calculation yields $686, as opposed op·pose v. op·posed, op·pos·ing, op·pos·es v.tr. 1. To be in contention or conflict with: oppose the enemy force. 2. to only $549 for the transaction coefficient approach). This is a 25% increase in allowable depreciation. Thus, for example, a like-kind exchange that generates $1 million depreciation for the replacement property using the transaction coefficient approach further illustrates the magnitude difference. By electing out, the annual depreciation can be increased by $250,000. (13) For an exchange of five-year for seven-year MACRS property, each subsequent year after the exchange year will generate an additional 15% depredation deduction from opting out of the transaction coefficient approach. If the objective is to maximize and accelerate the annual depreciation deduction, an opt-out To cancel some situation or condition. See opt-in. election should be made. Alternatively, if the objective is to defer de·fer 1 v. de·ferred, de·fer·ring, de·fers v.tr. 1. To put off; postpone. 2. To postpone the induction of (one eligible for the military draft). v.intr. , rather than accelerate, allowable depreciation deductions, the transaction coefficient approach would appear to be preferable. There are two basic causes for the difference between the two methods. The first is found in Temp. Regs. Sec. 1.168(i)-6T(c)(5)(ii)(A), which does not permit the transaction coefficient approach to increase the exchanged basis for the partial year of depreciation taken on the relinquished asset in the disposition year in calculating depreciation for the remaining partial year of the exchange. However, Temp. Regs. Sec. 1.168(i)-6T(c)(5)(ii)(A)(2) states that this adjustment must be made for purposes of calculating depreciation, when not using the transaction coefficient approach on the exchanged basis in the exchange year. This adjustment is needed to permit a full-year's depreciation for the exchange year. For that year, the depreciation is to be split between the replacement and the relinquished properties. The effect of not making this adjustment is illustrated by returning to the example, but modifying the replacement property to be five-year, rather than seven-year, MACRS property. The regulation clarifies that the relinquished property and the replacement property should both be allowed a full half-year of depreciation (i.e., $1,920 split equally ($960 for each property)) between them. (14) This will not occur when calculating depreciation for the replacement property on the exchanged basis, as such basis that has been reduced by the $960 of depreciation already allowed for the relinquished property. Thus, if the depreciation for the replacement property is calculated on the exchanged basis, which has already been reduced by $960, it will only be $768 (($3,840/5 years) x 200% x half-year convention), not $960 ((($3,840 + $960)/5 years) x 200% x half-year convention)) that the taxpayer should be entitled en·ti·tle tr.v. en·ti·tled, en·ti·tling, en·ti·tles 1. To give a name or title to. 2. To furnish with a right or claim to something: to deduct de·duct v. de·duct·ed, de·duct·ing, de·ducts v.tr. 1. To take away (a quantity) from another; subtract. 2. To derive by deduction; deduce. v.intr. . For the year, the depreciation would be $1,728, rather than $1,920. The second reason for the difference between the two approaches is a limit inherent in the transaction coefficient itself. This approach does not provide an adjustment when the regulation requires the replacement property to use a different life and/or and/or conj. Used to indicate that either or both of the items connected by it are involved. Usage Note: And/or is widely used in legal and business writing. method from that of the relinquished property. (15) In the above example, the replacement property was seven-year MACRS, and the relinquished property was five-year MACRS property. In the exchange year, a half-year of depreciation is calculated for the replacement property using the new seven-year life, and a half-year of depreciation is calculated for the relinquished property assuming a five-year life. The transaction coefficient approach is not designed to make this adjustment and, for years subsequent to the exchange, it adjusts "as if" a flail year of seven-year MACRS activity had occurred in the initial year. In fact, a half-year of seven-year MACRS activity occurred in the exchange year. This results in depreciation in subsequent years being understated under the transaction coefficient approach. Conclusion The new regulation provides useful guidance on the depreciation of MACRS properties involved in a like-kind exchange or an involuntary conversion. However, the guidance on applying the transaction coefficient to such transactions suggests that, in most cases, it will be to the taxpayer's advantage to elect out of using the optional tables. The benefit can be an increase of up to 25% in the allowable depreciation deduction in the exchange year. Regardless of the method chosen, it is important to verify (1) To prove the correctness of data. (2) In data entry operations, to compare the keystrokes of a second operator with the data entered by the first operator to ensure that the data were typed in accurately. See validate. that the amounts calculated have been computed for the relinquished and the replacement properties according to the preferred approach (even if the depreciation calculations are computer-generated computer-generated computer adj → de synthèse ). It is possible that the technology is performing the calculation in a manner similar to the transaction coefficient approach under Temp. Regs. Sec. 1.168(i)-6T(e), rather than the manual approach under Temp. Regs. Sec. 1.168(i)-6T(c) (5) (ii) (A). (1) See TD 9115 (2/27/04). (2) The tables are found in Rev. Proc. 87-57, 1987-2 CB 687, amplified and clarified by Rev. Proc. 89-15, 1989-1 CB 816. (3) The new regulations only apply to modified accelerated cost recovery system Modified Accelerated Cost Recovery System (MACRS) A 1986 act that set out rules for the depreciation of qualifying assets, allowing for greater acceleration over longer periods of time. (MACRS) property acquired in a Sec. 1031 exchange or a Sec. 1033 conversion. They do not apply to accelerated cost recovery system Accelerated cost recovery system (ACRS) Schedule of depreciation rates allowed for tax purposes. property relinquished in a like-kind exchange or in an involuntary conversion. The regulations also do not provide guidance on the determination of the depreciation allowance for the period the property is held by a qualified intermediary The Qualified Intermediary (also known as an Accommodator) should be a corporation that is in the full-time business of facilitating 1031 exchanges. The role of a QI is similar to, but not identical to, the role of an escrow company. . (4) Notice 2000-4, 2000-1 CB 313. (5) For a complete discussion, see Mason, Levy To assess; raise; execute; exact; tax; collect; gather; take up; seize. Thus, to levy a tax; to levy a Nuisance; to levy a fine; to levy war; to levy an execution, i.e., to levy or collect a sum of money on an execution. A seizure. and Levy, "Depreciation of Like-Kind Exchange Property after Notice 2000-4," 32 The Tax Adviser 398 (June June: see month. 2001). (6) See note 2, supra A relational DBMS from Cincom Systems, Inc., Cincinnati, OH (www.cincom.com) that runs on IBM mainframes and VAXs. It includes a query language and a program that automates the database design process. . (7) Although it is now common to rely on technology to manage the depreciation calculations, tax advisers bear the responsibility to review and verify them. It is not uncommon to make manual adjustments, given the complexity of the computations and the programming limits of certain technology. (8) See note 2, supra. (9) In most cases, the disposal and the replacement occur in the same year. If so, the depreciation for the year is effectively split between the relinquished and the replacement properties. If the replacement property is not acquired until a subsequent year, the half-year convention will apply to that year; see Temp. Regs. Sec. 1.168(i)-6T(c) (5) (ii) (A). (10) See Temp. Regs. Sec. 1.168 (i)-6T (e) (2) (ii) (B) (2). (11) See Temp. Regs. Sec. 1.168(i)-6T(e)(4), Example (1). (12) This rule does not apply to provisions that limit the depreciation deduction, such as the Sec. 280F limits on luxury automobiles. (13) Exchanges of property with different recovery periods from those used in this example may generate different results. (14) If a different convention (i.e., mid-quarter) were in effect, the depreciation would be allocated based on the applicable convention. (15) If the replacement and relinquished properties are subject to the same MACRS life and method, the only difference between the two approaches will be due solely to the transaction coefficient approach's lack of adjustment to the exchanged basis for the exchange year. J. David Mason
Associate Professor Department of Accounting Southern Illinois Illinois, river, United States Illinois, river, 273 mi (439 km) long, formed by the confluence of the Des Plaines and Kankakee rivers, NE Ill., and flowing SW to the Mississippi at Grafton, Ill. It is an important commercial and recreational waterway. University-Edwardsville Edwardsville Edwardsville, city (1990 pop. 14,579), seat of Madison co., SW Ill.; inc. 1819. It is mainly residential, with many citizens commuting to St. Louis. A campus of Southern Illinois Univ. is there. , IL |
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