Video instructions and help with filling out and completing Which Form 4797 Tangible

Instructions and Help about Which Form 4797 Tangible

Welcome my name is Marci Hampton and I'm a faculty member at the UCF Dixon school of accounting in this short lecture I am going to talk about makers depreciation this video is video two of a three set video in this video we will talk about makers depreciation for tangible personal property in doing makers for tangible personal property the first thing that we want to look at is what are the preset classes that we have preset classes we have four tangible personal property are 3 5 7 10 15 and 20 year property the preset class is determined by the type of property that we're talking about for example vehicles our five-year property furniture and fixtures our seven-year property the next thing we look at is what method is used the method that's used to calculate makers for tangible personal property is declining balance it is mostly double or 200% declining balance but it is a hundred and fifty percent declining balance for 15 and 20-year property the conventions that we use so that we'll have tables that everybody can use that will enable us to calculate our partial year for the first year and the final year in this case we have two possible conventions to handle the partial year for the first and the final year the first convention is the half year convention in the half year convention regardless of when during the year that you actually place the asset and service we're gonna treat it as if it was placed in service halfway through the year that way we get half a year's depreciation in the first year and a half year depreciation in the final year this way we can build it into the tables and enables us to use the tables with rates that everybody can use everywhere in addition taxpayers are told to switch to straight-line depreciation when the straight-line depreciation exceeds the mate regular makers depreciation good news this is also built into the tables so we don't have to do any continuing along in the convention we have a slight problem that came up with the half year convention surprise surprise we had manipulation that occurred many people started placing tangible personal property assets in service at the end of the year and still getting half year depreciation it's a great gig if you can get it the government said I don't think so and that led to a second convention the second convention is the mid-quarter convention in the mid-quarter convention now regardless of when during the quarter that you actually placed it in service we're gonna treat it as if it was placed halfway through that quarter which means that you're going to get half of a quarters depreciation in the first quarter it was placed in service and half a quarters depreciation in the final quarter that it was used when do we have to use the mid-quarter convention we only have to use it if more than 40% of the tangible personal property that you place in service during the year was placed in service during the last quarter of the year if that's the case then all tangible personal property that you placed in service during the year must use the mid-quarter convention and we'll find that it's going to be based on the quarter that's placed in service there are separate tables therefore for the mid-quarter convention and within those tables we will find that there's a column for each quarter so how do the tables work how do we get the rates in the tables are they made up and here's what happens if we for example had a taxpayer who purchased equipment for $5,000 that's five-year property basically to do double declining balance we have to come up with a double declining rate the double declining rate is twice the straight-line rate we then take that double declining rate in this case for five-year property which is 20% is the straight line rate 100% divided by five years double them to get the double declining rate which would be forty percent so four five-year property the double declining rate is 40 percent in double declining balance depreciation we then take that double declining rate and we multiply it times the declining Book value that's why it's called double for double the declining rate times the declining Book value so essentially here's the way it looks in year one your declining Book value is a hundred percent of the cost we sent our double declining rate is 40 percent so we multiply it times forty percent we're using the half year convention so we're only going to get half a year in the first year so in the first year we're going to take a hundred percent of the cost we're going to get twenty percent of that as our depreciation for the year notice what happens in year two in year two we've already taken twenty percent of the original cost in depreciation so what's our del R declining Book value eighty percent of the original cost we're gonna then take that and multiply it times the double declining rate of 40% well if you instead take 80 percent times forty percent and just combine that that comes out to thirty-two percent now I can take 32 percent of the original cost instead of having to recalculate a declining Book value once we do that when we get to year three we've taken twenty percent in the first year we've taken 32 percent in the second year so we've already taken fifty-two percent that leaves us 48 percent of the original cost again we're gonna take that we're going to multiply that times the 40 percent double declining rate well if you take 48 percent of 40 percent it's nineteen point two percent so if we multiply those together upfront then we can just take nineteen point two percent

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