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Tax Law (Questions About Taxes)/Must we depreciate immediately

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Question
A friend purchased a tractor-truck for $138,000 and a flatbed trailer for $43,000.  He is an owner-operator driver. When we write off all his expenses, plus depreciate (MACRS 200DB) the truck and trailer his AGI is (-13,211).  Does he have to depreciate this equipment this year (2012) or can he wait until next year to start depreciation?  (Or maybe we're doing something wrong....) Bottom line, it is eating-away his refund!!

Answer
Linda,

Thanks for your question.

The IRS will reduce your basis in depreciable assets for depreciation allowed or allowable.  In plain English, that means that they will treat the asset as though you took depreciation on it, whether you did or not, so it's better to go ahead and deduct depreciation in the year it is allowed.  

You might want to look at the ADS depreciation system instead of MACRS.  It allows a longer class life.  However, once you start with ADS on an asset you cannot change it to MACRS.

Hope this helps.  

John Stancil, CPA

Tax Law (Questions About Taxes)

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John Stancil, CPA

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I can answer questions on personal income taxes, partnerships, and some corporate income taxes. I can deal with some state tax questions. Limited gift and estate tax questions. I am also familiar with ministerial and church tax reporting issues. I am Professor Emeritus at Florida Southern College. Sales taxes and property taxes are state and local issues so I am not likely be be able to give you an in depth answer on those types of taxes. I have maintained a CPA practice, specializing in tax, for over 35 years. I am a member of the National Association of Tax Professionals, The Florida Insititute of CPA's, The NCPE Fellowship. In addition I am a Certified Mentor for SCORE. Visit my website at www.mybaldcpa.com. I also offer seminars and consultations to churches and clergy on their tax issues at www.churchtaxsolutions.com Also visit my blog, www.thetaxdocspot.com. I am listed on Tax Connections at https://www.taxconnections.com/profile/John-Stancil/12258973 Prepare and file your own taxes at www.1040stancilcpa.com

Experience

I hold a doctorate in Accounting, and am a CPA. My certifications of CIA, CFM, and CMA are inactive. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I have operated a CPA firm for over 37 years and have taught accounting and tax at the college level for over 35 years.

Organizations
FICPA, NATP, NCPE Fellowship, Lakeland Business Leaders

Publications
The CPA Journal, Florida CPA Today, Green Consumer, Green Business, Global Sustainability as a Business Imperative, Palmetto Review, NATP TaxPro Quarterly, Mustang Journal of Finance and Accounting.

Education/Credentials
DBA University of Memphis MBA University of Georgia BS in Accounting Mars Hill University

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