1.7 Depreciation, Amortization, and Depletion

1. Depreciation

1) MACRS (1987 and beyond)

(1) Salvage value: zero

(2) Property other than real property (personal property)
 - 5-year 200% class: automobiles, light trucks, computers
 - 7-year 200% class: office furniture and fixtures, equipment
a) Half-year convention
b) Mid-quarter convention (more than 40% placed in the last quarter)

(3) Real property (subtract land cost)
a) Residential rental real property (27.5-year straight-line)
b) Non-residential real property (39-year straight-line)
c) Mid-month convention

2) Bonus depreciation

For qualified property (new or used personal property with a recovery period of 20 years or less) placed in service after Sept. 27, 2017, and before Dec. 31, 2022, the first-year bonus depreciation percentage increases to 100%.

3) Straight-line in lieu of accelerated depreciation

4) Expense election in lieu of depreciation (Section 179)

The limit is $1,020,000 (2019) on new or used properties that are acquired by purchase from an unrelated party.

2. Amortization

1) Sec. 197 Intangible asset

Intangibles such as goodwill, franchises, licenses, trademarks, and covenant not to compete may be amortized using a straight-line basis over a period of 15 years (180 months), starting with the month of acquisition.

2) Others

(1) Organizational expenditure: first $5,000 to be expensed and the remainder is amortized over 180 months
(2) Research and development expenses: deducted currently or amortized over 60 months.

3. Depletion

1) Cost depletion (GAAP)
2) Percentage depletion (Non-GAAP)