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Wiley GAAP 2008 by Colorado Steven M. Bragg Englewood, Ralph Nach American Express Tax and Business Inc., Barry J. Epstein

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Property and equipment future taxable temporary difference

On January 1, 2008, Caitlyn International purchased $400,000 of property and equipment with a 10‐year estimated useful life which, under its normal accounting policy, it depreciates using the straight‐line method. For income tax purposes, these assets qualify as 5‐year personal property under the General Depreciation System (GDS) and consequently income tax depreciation is computed using the Modified Accelerated Cost Recovery System (MACRS) which is equivalent to double‐declining balance depreciation with a half‐year assumed for the year placed in service and changing to straight‐line depreciation when advantageous to the taxpayer. In addition, as permitted by IRC Section 179, Caitlyn elected to deduct $100,000 of these costs in the year placed in service. By making this election, for the purpose of computing income tax cost recovery, Caitlyn is required to reduce the depreciable basis of the eligible assets by the amount of Section 179 deduction taken during the tax year.

 2008TaxGAAPFuture (taxable) deductible amount
APurchase price of assets$400,000$400,000 
BSection 179 expense election100,000 
CAdjusted depreciable basis (A − B)300,000400,000 
DDepreciation rate× 20%×10% 
E2008 depreciation (C × D)60,00040,000 
FSection 179 expense election (B)100,000 
G2008 depreciation and section 179 (E + F)160,00040,000 
HBasis at 12/31/08 (A − G)$240,000$360,000$(120,000)
 2009   
IDepreciation rate× 32%× 10% 
J2009 Depreciation (C × ...

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