Thread: Determining Depreciation

Originally Posted by wrei@comcast.net

Let's assume you are running a Limo company. Your success will be limited if you do not replace your limos long time before the possible useful economic life of the cars. This is the reality, accepted by the IRS and has little to do with superficial transactions

Of course, the IRS will accept certain changes from standard procedures. But in regards to depreciating a capital asset before its economical lifespan has run out, just because the owner decides to replace it sooner? I am afraid that it will depend on the IRS inspector you get during an audit to accept something like this.
Officially speaking, if an asset like a Limo will still have bookvalue on the moment its being replaced, then this value will reflect in the trade-in that the dealership gives for it when you get rid of this limo. This trade-in value will have to be considered as the "sellingprice" of this lost capital asset. If, for instance, the bookvalue would be $500, and the dealership gives you $750 for it, then you will even have gained a profit on getting rid of this particular limo. I do not think that there will be an IRS officer, that will accept the depreciation of an additional $500 in the books when you actually make a profit.

In this situation, there might a way to use this "profit" to decrease the actual purchase value of the new limo, but just depreciating out of the standard guidelines is something that I would not advise anybody to just do.

As the simplest of the depreciation methods SL Depreciation is calculated:

Cost minus Salvage divided by Life or (65,000-3,000)/5=12,400
Depreciation expense remains the same for each year of the asset's life.

I agree with wrei@comcast.net - there are two types of fixed assets - Both are correct at the end of the fiscal year

With new computer technology coming out every other year, I would depreciate you present computer with 36 months.