How does Tax Depreciation Work?

The tax system is complex for businesses. One of the features is that it allows businesses to recognize depreciation of assets. Most governments do this in some form to encourage investment.

If you spend $1,000 for an asset that is allowed to tax depreciate over 10 years, you can subtract $100 per year from your income each year for the next 10, until the tax value goes to zero. So you pay less in normal taxes at your tax rate. This reflects the value from a tax perspective, not the actual market value. To emphasize, virtually all governments allow this recovery of costs on an accelerated basis to encourage investment.



If you then sell the asset for $50, you owe taxes on the $50 (sales value minus depreciated value of zero). Likewise, if you can get $1,200 for the asset, you would owe tax on the full $1,200. Equipment and machinery tend to go down in market value over time and with use, whereas historically, property appreciates. Even then, the gain is taxed at the lower long-term capital gains rate, rather than as normal income.

There's an important exception. If you die before selling it, the asset assumes a fair market value on it, so when they sell it, no taxes will be due. The tax value reverts to the fair market value upon inheritance. This is a really big tax advantage for those who inherit property or stock which may have appreciated.

Popular posts from this blog

Anthropogenic Global Warming

Image
I will call people who believe in anthropogenic global warming (AGW), warmists, those who are less certain, denialists. I hope it insults both sides equally. My BS degree is in earth science. I work for an oil company. I believe in the scientific method. I believe that government has a legitimate role to play in society. I am not a Neanderthal. I have biases. Some may think that because I work for an oil company, I desperately want to see the warmists fail. Look, I'm too close to retirement for anything that happens now to have an effect on my personal earnings or career, so I don't think that comes into play. And by the way, I live on this planet. If humans are doing something to damage the planet, I want it to stop. I want us to take action to fix and reverse the harm. I may be retiring within fifteen years, but I hope to live a lot longer than that, and I want my kids to inherit a good place. I have read a lot about the science, politics, and economics of the CO2/glob
Read more

Fun With Boat Electronics

The lightning strike was close by. We could see that it had hit one of the boats just down the dock from ours. Phew. It wasn't a direct hit we said from the dry comfort of a nearby restaurant. But things happened. In the days after the strike, several electronic systems on the boat were not working properly. Autopilot was out and the sound system was sketchy, Wind instruments worked intermittently. VHF radio worked, but could not read the GPS signal. The helm digital displays (IS40) worked intermittently. Although pretty competent with computers and networks generally, I had never done any work with a boat network. Work was busy, so we had the boat dealer's mechanic take a look at it.  His conclusion was that there was a problem with the chart plotter. We weren't really interested in buying a new chart plotter, but if that was the problem...  On the word of the mechanic, we were able to get a partial refund under warranty from Simrad. We even upgraded to the next size chart
Read more

Staking My Claim to MicroSnaking

Image
Project management processes often show the project progression by moving between the project team to do the work and a meeting with management to allow the project to move on to the next step. One expression for this sinuous depiction is "snaking." You can see the resemblance to a snake in the graphic. This type of process management is typical in Waterfall or Phase Gate processes.  Agile processes have become more common in recent years. They describe an iterative process with rapid testing, feedback, and turnaround. It actually looks quite similar, but rather than taking a few months, it takes a few weeks. Rather than going high on the chain of command, it goes up a level or two. Sometimes there are not phase gates at all, just continuous up and down. This up and down feedback, I am calling "MicroSnaking" or "micro-snaking." I'm the first. I stake my claim. The term is free for all to use. Knock yourself out.
Read more