Fields of Flowers, Inc., operates
a retail florist shop. It files its
corporate tax return based on a
calendar year. The corporation began
its operation in 2001. The
corporation uses all of its property
100% for business purposes.
The worksheet shows the
information needed to figure
depreciation on each item of
property and the total
depreciation for 2004. The
corporation's books and records
support the information on the
worksheet. There is an account
for each item of property. These
accounts show the following
information.
- The date of
acquisition.
- A description of the
property.
- The cost or other
basis of the property.
- The amount of
section 179 deduction
claimed.
- The special
depreciation allowance
claimed.
- The MACRS
depreciation method
used.
- The property class
and recovery period.
- The depreciation
deducted each year.
For information on business
recordkeeping, see Publication
583,
Starting a Business and Keeping
Records.
On February 2, 2002, the
corporation bought the building
used as its place of business
for $250,000 and placed it in
service. It also bought and
placed in service on that date
the following property.
- A desk and chair for
$1,025.
- Refrigeration
equipment for $4,500.
- Work tables for
$1,200.
- A cash register for
$675.
The building is
nonresidential real property.
Fields of Flowers depreciates it
using the straight line method
and mid-month convention over a
recovery period of 39 years. It
uses Table A-7a.
The refrigeration equipment,
work tables, and cash register
are 5-year property and the desk
and chair are 7-year property.
The corporation claimed a
section 179 deduction for their
full cost. It takes no
depreciation for this property.
In 2003, Fields of Flowers
bought and placed in service the
following new items of property.
- On April 16, a
delivery truck for
$36,000.
- On July 3, a copier
for $300.
The corporation claimed a
$24,000 section 179 deduction
for the truck. It used the
remaining cost of $12,000
($36,000 - $24,000) to figure a
special depreciation allowance
for the truck of $3,600 (30% of
$12,000). The basis of the truck
for depreciation is $8,400
($12,000 - $3,600). The
corporation claimed a special
depreciation allowance of $150
(50% of $300) for the copier.
The basis of the copier for
depreciation is $150 ($300 -
$150). It chose to use the 150%
declining balance method over
the GDS recovery period for
these property items. The
recovery period for both the
truck and copier is 5 years. It
applied the half-year convention
for both items and used Table
A-14.
In 2004, Fields of Flowers
bought and placed in service the
following new items of property.
- On March 11, a USA
van for $49,800.
- On June 21, a
computer for $3,000.
- On September 9, file
cabinets for $475.
- On November 1, store
counters for $1,870.
- On November 16, a
sport utility vehicle
(SUV) for $55,000.
The corporation elects to
claim a section 179 deduction of
$49,800 on the van and $25,000
on the SUV.
The total depreciable bases
of the counters and the SUV,
placed in service during the
last three months of the
corporation's tax year, is
$31,870. This is more than 40%
of $35,345, the total
depreciable bases of all
property placed in service
during 2004. The corporation
must apply the mid-quarter
convention for all four items.
The corporation reduces the
$55,000 cost of the SUV by its
section 179 deduction of $25,000
for the SUV. It uses the
remaining cost of $30,000 to
figure a special depreciation
allowance for the SUV of $15,000
(50% of $30,000). The basis of
the SUV for depreciation is
$15,000 ($30,000 - $15,000).
The corporation claims a
special depreciation allowance
of $1,500 (50% of $3,000) for
the computer, $238 (50% of $475)
for the file cabinets, and $935
(50% of $1,870) for the store
counters. The basis of the
computer for depreciation is
$1,500 ($3,000 - $1,500). The
basis of the file cabinets for
depreciation is $237 ($475 -
$238). The basis of the store
counters for depreciation is
$935 ($1,870 - $935).
The file cabinets are 7-year
property for which the
corporation uses Table A-4. The
counters, the SUV, and the
computer are 5-year property
items. The corporation elects to
use ADS for its 5-year property.
The ADS recovery period is 9
years for the counters and 5
years for the SUV and computer.
The corporation uses Table A-10
for the computer and Table A-12
for the store counters and SUV.
Fields of Flowers is a
corporation, so it reports
depreciation on Form 4562. The
corporation enters the total
depreciation deduction
($8,590.25) for the property
placed in service before 2004 on
line 17 in Part III.
The delivery truck has
seating only for the driver. It
is not listed property. If it
were listed property, its
depreciation would have been
reported in Part V of Form 4562.
The corporation reports the
special depreciation allowance
for the computer, file cabinets,
and store counters in Part II.
It enters the total allowance of
$2,673 for all 3 items on line
14.
The corporation reports the
MACRS depreciation for the file
cabinets in Section B, Part III.
It uses GDS for this property
and applies a mid-quarter
convention. On line 19(c), it
enters “MQ”
in column (e) to show the
mid-quarter convention is
applied and “200DB”
in column (f) to show it is
using the 200% declining balance
method. It enters the
depreciation deduction of $25.38
in column (g).
The corporation reports the
depreciation for the store
counters and the computer in
Section C, Part III. Both
properties have a class life
assigned to them in the
Table
of Class Lives and Recovery
Periods in Appendix
B and neither class life is 12
years or 40 years (lines 20b and
20c). Therefore, the corporation
enters the depreciation
deduction of $200.50 on line
20(a) in column (g).
The van is listed property.
Fields of Flowers has taxable
income of $145,389. It elects to
take the entire $49,800 cost as
a section 179 deduction on the
van, which it reports on line 26
in Part V of Form 4562 in column
(i). The van weighs over 6,000
pounds. It is not a passenger
automobile and is not subject to
the limits discussed under
Do
the Passenger Automobile Limits
Apply in chapter 5.
The SUV is also listed
property. The corporation
reports the special depreciation
allowance and the MACRS
depreciation for it in Part V of
Form 4562. It elects to take
$25,000 of the cost of the
vehicle as a section 179
deduction for the SUV. The SUV
weighs over 6,000 pounds. It is
not a passenger automobile and
is not subject to the passenger
automobile limits discussed
under
Do the Passenger Automobile
Limits Apply in
chapter 5. However, the SUV is
subject to the $25,000 section
179 deduction limit for SUVs
discussed under
Section 179 Deduction Limit for
Sport Utility and Certain Other
Vehicles in chapter
2.
The corporation reduces the
cost of the SUV by the amount of
the section 179 deduction and
special depreciation allowance.
It enters “5”
on line 26 in column (f) to show
the recovery period in years and
“SL”
and “MQ”
in column (g) to show it is
using the straight line method
and the mid-quarter convention.
It enters the MACRS depreciation
deduction of $375 in column (h)
and the section 179 deduction of
$25,000 in column (i). It enters
the special depreciation
allowance of $15,000 on line 25
in column (h).
The corporation enters the
amount from line 28 on line 21
and the amount from line 29 on
line 7. It completes Part I to
determine its allowable section
179 deduction. It adds the
amounts on lines 12, 14, 17,
19(c), 20(a), and 21 and enters
the total, $101,664.13, on line
22. It rounds the total to
$101,664 and enters it on the
depreciation line of its tax
return.
