Depreciation of property acquired subject to secs. 1031 and 1033.Taxpayers who acquire 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 See Modified Accelerated Cost Recovery System. MACRS See Modified Accelerated Cost Recovery System (MACRS). ) property in a Sec. 1031 like-kind exchange or as a result of a Sec. 1033 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. conversion have new guidance for depreciating de·pre·ci·ate v. de·pre·ci·at·ed, de·pre·ci·at·ing, de·pre·ci·ates v.tr. 1. To lessen the price or value of. 2. To think or speak of as being of little worth; belittle. the acquired property under Sec. 168. Notice 2000-4 states, "the acquired MACRS property should be treated in the same manner as the exchanged or involuntarily in·vol·un·tar·y adj. 1. Acting or done without or against one's will: an involuntary participant in what turned out to be an argument. 2. converted MACRS property with respect to so much of the taxpayer's basis in the acquired MACRS property as does not exceed the taxpayer's adjusted basis in the exchanged or involuntarily converted MACRS property. Thus, the acquired MACRS property is depreciated Depreciated may refer to:
Example: T purchased a rental office building for $630,000 on Jan. 1, 1990. The building was depreciated using 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 over a 31.5-year recovery period. (Disregard the mid-month convention for this example.) On Jan. 1, 2000, when the building had $200,000 of accumulated depreciation accumulated depreciation The total amount of depreciation that has been recorded for an asset since its date of acquisition. For example, a computer with a 5-year estimated life that was purchased for $2,000 would have accumulated depreciation of $800 [( and a remaining recovery period of 21.5 years, the Years, The the seven decades of Eleanor Pargiter’s life. [Br. Lit.: Benét, 1109] See : Time taxpayer exchanged the building and $195,000 cash for a new rental office building in a transaction subject to Sec. 1031. T's basis in the new building is $625,000 ($630,000 cost of the surrendered building, minus $200,000 accumulated depreciation, plus $195,000 cash paid). Based on Notice 2000-4, T should essentially treat the newly acquired building as two assets in calculating depreciation. One asset is the old building, with an adjusted basis of $430,000, which should be depreciated using the straight-line method over the remaining 21.5-year recovery period. The other asset is a newly purchased building, with a basis of $195,000 (cash paid), which should be depreciated using the straight-line method over a 39-year recovery period. Depreciation in 2000 will be $25,000 ($430,000 basis depreciated over 21.5 years plus $195,000 basis depreciated over 39 years). If T treated the building as newly purchased MACRS property and depreciated, the net basis of $625,000 over 39 years, his 2000 depreciation would be only $16,026. T will claim the same total depreciation, regardless of method, if he holds the newly acquired building for 39 years. However, depreciating the property 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. Notice 2000-4 accelerates depreciation over that allowed for newly purchased MACRS property. In addition to accelerating the deductions, Notice 2000-4 provides other tax-saving opportunities. First, the additional depreciation claimed as an ordinary deduction is converted to capital gain (unrecaptured Sec. 1250 gain) if T disposes of the property in a taxable transaction Taxable transaction Any transaction that is not tax-free to the parties involved, such as a taxable acquisition. before the end of the 39-year period. Second, if T dies within the 39-year period, any basis step-up will be increased. Accounting Method If acquired property subject to Sec. 1031 or 1033 was placed in service before Jan. 3, 2000 and a taxpayer treated it as newly purchased MACRS property (rather than according to Notice 2000-4), the taxpayer may continue this treatment. However, a taxpayer presently depreciating such property as newly purchased MACRS property may change to the depreciation method described in Notice 2000-4, provided the change is made for the first or second tax year ending after Jan. 3, 2000. Thus, a calendar-year taxpayer may change methods in either 2000 or 2001. A change from treating property as newly purchased property to that described in Notice 2000-4 is an accounting method change to which Secs. 446 and 481 apply. A taxpayer changing the method of accounting for property acquired subject to Sec. 1031 or 1033 must follow Rev. Proc. 99-49's automatic change in accounting method provisions, provided the taxpayer makes the change in method for the first or second tax year ending after Jan. 3, 2000 and takes into account any required Sec. 481(a) adjustment in accordance with Rev. Proc. 99-49. For property placed in service after Jan. 2, 2000, a taxpayer should use the method described in Notice 2000-4 until regulations under Sec. 168 are issued to address these transactions. FROM KATHLEEN K. MARTIN, MADISON, WI |
|
||||||||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion