Re: Re: Re: Writing off a new horn


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Posted by Rick Denney on January 27, 2004 at 17:38:39:

In Reply to: Re: Re: Writing off a new horn posted by Also on January 27, 2004 at 08:04:53:

Section 179 is a portion of the accelerated cost recovery system, which is a way to expense depreciation all at once rather than over a period of time for capital expenses below a certain amount.

But it is still depreciation, which means that if you ever sell it, and it has value, then you'll have to pay taxes on the sale amount as a capital gain.

In my opinion, one should only depreciate capital equipment and property that actually declines in value. I know folks who depreciated their rental property (i.e., houses), and then when they sold it they had to pay a third of the sales price in taxes, all at once.

Here's how it works: Depreciation is a cost. When you buy a car for a business, you know that four (or eight--whatever) years from now you'll have to buy another car to replace it. By that time, the car's value will have dwindled down to its salvage value. That depreciation is a cost for you--not only do you have to buy the car, but you have to buy it all over again when it has lost its value. It gets written in the books as a cost, and like all costs, you can deduct them from your business income to determine how much profit you made. You pay taxes on the profits.

This works for cars and computers--things that really do decline in value. Problem is, tubas don't really depreciate, especially used tubas. Thus, they are not a cost. The IRS doesn't know any better and will let you present them as a cost, but at some point you'll have to pay it back when you sell it and discover that, after all, tubas don't depreciate. And then you have a real problem, because that deduction that saved you only $300 when you had very little income and paid taxes at a really low rate will now cost you $600 when you are paying taxes at a higher rate.

Bottom line: Don't depreciate anything as a cost unless its value really is going down.

Rick "who learned this the hard way" Denney


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