2008 is the Year You Want to Get Depreciation Right

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If you might be able to claim a loss from your 2008 business, please pay attention to this blog post. That’s because you have a lot of choices this year and if you make the right choice, you can get instant cash from the government.

You have 4 choices with a net operating loss in 2008. You can carry it back for 3 years to 2005, then 2006 and finally 2007. Or you can carry it back 4 years, starting in 2004 and then running for 4 years. Or you can carry it back 5 years, starting in 2003 and then running for 5 years. Or you can simply roll the loss forward. There are a lot of decisions there!

Now, let’s talk about depreciation. In 2008, the Section 179 deduction was increased to $250,000. That means you could take a write off for up to $250,000 of equipment you purchased, as long as you hadn’t purchased more than $800,000 in total. You could also take a bonus depreciation of 50% of basis in the first year. This doesn’t give you extra depreciation, just front end loads it.

Now this is where it gets tough. You have the choice of taking the deductions. Which do you use when?

Let’s say you have bought $200,000 worth of equipment. You have income of $100,000. You could take a total Section 179 of $200,000. This would create $100,000 in loss ($100,000 income less $200,000 Section 179). The trick though is that a Section 179 can’t create a NOL carryback. So if that is your plan, this won’t work.

You could take $100,000 in Section 179 (taking you 0 income) and then take the 50% bonus depreciation (that would be 50% of the remaining $100,000 in basis), to take you to $50,000 in NOL.

Or you could take the whole thing in bonus depreciation and go direction to zero.

That’s a simplistic example because I haven’t taken the regular depreciation into account.

Choices, choices, choices. Want some help making the best ones for your tax return? Drop Richard an email at Richard@DKTaxServices.com to find out how easy it can be to work with us.

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