One of the most common disputes between taxpayers and the IRS revolves around the question of whether certain expenses are deductible in the current year or need to be capitalized and recovered over time. This expense versus capitalization issue arises in various contexts. We have considered a number of these disputes on this site. It…
Category: Depreciation
Depreciation
Properly calculating depreciation is critical to accurately reporting income and minimizing tax liabilities. Our experts can help you navigate these complex rules. Give us a call to see how we can help, (713) 909-4906.
The Qualified Nonpersonal Use Vehicle
What Congress provides with one provision, it often takes away with another. This can result in legal challenges whereby the court creates exceptions. The exceptions can be modified and qualified by later legislation. This creates a labyrinth that one has to navigate to determine how an item is treated for federal income tax purposes. The…
Planning for Commercial Solar Tax Credits
The solar tax credit can significantly reduce Federal income taxes. Congress has recently reaffirmed its desire to spur these investments to curb reliance on foreign energy and to help the environment. As with most tax incentives, such as the research tax credit, there are a number of rules that have to be followed to be…
When is Real Estate Placed in Service?
Several tax laws are triggered by when property is purchased. Other tax laws are triggered when property is placed in service. Depreciation on real estate is a good example. It is triggered when property is purchased and placed in service. The capitalized costs are then expensed, usually. These dates raise questions about whether property is…
Records Needed for Partial Asset Dispositions
Taxpayers often overlook “partial asset dispositions.” Their tax advisers do too. This may be due to it being a depreciation issue that seems unimportant. It may also be that the partial asset disposition is a relatively new concept. Regardless, partial asset dispositions can save taxpayers quite a bit in taxes (it is a timing issue,…
How to Allocate Tax Basis for Real Estate
If you sell real estate, you pay tax on the gain. Gain is the product of the sales price less tax basis. Tax basis in turn is the amount invested in the property. But how do you calculate and then prove tax basis for buildings located on the property when you sell some but keep…
Planning for Start-Up Businesses, Yacht Rental Example
New businesses may not be immediately profitable. To help mitigate the financial risk, many businesses are started by workers who have a day job. If the business is not immediately profitable it can help the owner finance the business if the owner is able to use the tax losses from the business to offset the…
Insurance Agent Denied Depreciation Deduction For Airplane
In Brown v. Commissioner, T.C. Memo. 2013-275, the U.S. Tax Court denied an insurance salesman’s bonus depreciation deduction for his private jet as it was not placed in service in the tax year. The case highlights the highly factual nature of determining when an asset is deemed to have been placed in service for tax…
Parking Garages: Parking Lot Depreciation Life
In recent Chief Counsel Memo #20125201F, the IRS concludes that open-air parking garages are considered buildings rather than land improvements for tax purposes. The IRS attorneys go on to say that the taxpayer’s conclusion to the contrary warrants the assessment of a negligence penalty. That is a pretty harsh result given that the tax law…
IRS Says When a Grape is No Longer a Grape
The tax law is filled with artificial distinctions and deadlines that often don’t match up with the way businesses actually operate. One area where this is particularly true is in the realm of capitalization. Capitalization rules allow taxpayers to calendar expenses and treat them differently depending on the phase of a project or manufacturing process.…