Disposing of an Asset That Qualifies for Bonus

If MACRS property that is subject to the half-year or mid-quarter convention is purchased and then disposed of in the same tax year, no MACRS deduction is allowable (i.e. section 179/168(k)).  Basically, you can’t dispose of an asset with in the same year that you placed that asset in service if you elected to take the bonus depreciation.  Not to be confused however, with an early disposition.  An early disposition is simply when you dispose of an asset before it’s estimated useful life is over.

Why would someone think or want to dispose of an asset in the same year?  Many reasons: say you purchased a group of computers on Craig’s List or eBay and they didn’t come with a warranty? Then you got them placed them in service and elect to take the 50% deduction in the first year, and then — wha wha whaaaaa… they all break or blow up (you know what I’m talking about). You can’t replace them for free… 

If you have trouble managing your asset dispositions or even calculating the bonus depreciation for tax calculations, Sage FAS is a glorious mechanism and can automate these process and even include (I hope you are sitting down) all the necessary reports for you and your Auditors!  Get out!

Side Note: For additional information regarding property acquired and disposed of in the same tax year and the rules behind it, please see IRS Publication 946 (How to Depreciate Property); Reg. 1.168(d)-1(b)(3).

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