On Thu, 1 Nov 2001 18:33:40 -0800 (PST), Jordan Hayes wrote:
> Let's start from the top: depreciation (as opposed to say allowing the
> full deduction at the time it's incurred) is a _negative_ subsidy (I
> guess you call that a "cost"?) to capital. Reducing the depreciation
> period (trucks take 27 years; how old is your truck?) gets some of that
> back, but there's _never_ a subsidy; it might be a wash (as in the case
> of leasing), but it's never a subsidy.
>
> In fact, it's usually the other way around. For instance, you may
> upgrade desktop computers every two years, though they are listed as
> five year property. So when you take them out of service (i.e., their
> "value" goes to zero) you write the rest of them off. It in effect
> shows clearly that five years is dumb.
Just to jump into this scintillating fray:
Trucks and computers are both five-year property, according to the depreciation tables. Under standard MACRS rules, each is depreciated over 5 years using double-declining balance (in most cases, over the first two years, a taxpayer would write off 52%--20% in year 1 and 32% in year 2--of the value of its 5-year property). Companies and individuals subject to AMT still use the 5-year depreciation period, but a 150%-declining balance method that is still faster than straight-line depreciation.
I think that most trucks have a real useful life of over 5 years. The 5-year scheme probably understates the depreciated value of computers, but not by much. Even if a business upgrades its computers every two years (and I have yet to work for a firm that did), the computers still have salvage value.
Tim Francis-Wright