Depreciation

[jimskime]

We depreciated an asset for five years MACRS with a large salvage value. Originally it was expected that the asset would be sold after five years. How do we S/L depreciate that leftover salvage value now that the client has decided to keep the asset longer without messing up the balance sheet?

I HAVE ALL THE COMMENTS I NEED. THANKS FOR THE SNARKINESS ESPECIALLY.

[TaxGuyBill · Accepted solution]

Is this for tax returns? If so ...

Salvage value?  Didn't that end in 1986?

You also can't pick-and-choose to depreciate something over 5 years just because you think you will have it for 5 years.  You must use the IRS pre-set "Recovery Period".

As for what to do now, assuming that the salvage value should not have been done, you need to amend the prior years to correct the depreciation.  No salvage value.   However, if 5 years was the incorrect Recovery Period, you need to use Form 3115 to correct things.  

[PhoebeRoberts]

MACRS tax depreciation doesn't use a salvage value. My Master Depreciation Guide says salvage value is only a consideration under ADR.

Sounds like Form 3115 is the way to fix it for tax. If you're asking about book, you can do whatever you like for book purposes; that's what Schedule M is for.

[sjrcpa]

I think salvage value for tax purposes went away before that - with ACRS.

[IRonMaN]

Salvage value?  The good old days.  I was thinking that I hadn't seen that since the CPA exam I took in 1932.

[jimskime]

Gee whiz, I should have been more specific. I'm not looking for tax advice. I did not sit for the CPA exam in 1932 like one wise guy, but it was many years ago. What I'm looking for is a technical way within Lacerte to depreciate the remaining balance of an asset using straight line depreciation over 20 years. 

This was a mechanical question, not a tax question.

[sjrcpa]

Override current year depreciation to the number you want.

[IRonMaN]

It's good that some people are able to recognize wisdom when they see it.  Rock on class of 1932!

[TaxGuyBill]

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@jimskime wrote:

Gee whiz, I should have been more specific. I'm not looking for tax advice. I did not sit for the CPA exam in 1932 like one wise guy, but it was many years ago. What I'm looking for is a technical way within Lacerte to depreciate the remaining balance of an asset using straight line depreciation over 20 years. 

This was a mechanical question, not a tax question.

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So you are saying you want to know how to override Lacerte so you can do things that are contrary to tax law?   Seriously?  And you stating that in a public forum?

As was stated above several times, you can't use Salvage Value or pick-and-choose how you want to do things.  Mostly like you need to file Form 3115 to correct and adjust things to tax law.

[qbteachmt]

"I'm not looking for tax advice."

You don't ask peer users what to do with something that is wrong, that will continue to make it wrong.

You seem to have used "our determination of how long we intend to keep this" and not IRS Useful Life for the type/class of asset. That's what is being explained.

If you bought commercial real estate and you knew you would outgrow it in 5 years, you would never depreciate it over 5 years. That isn't what the IRS regulations direct.

You made this same error. Everyone is explaining you should fix your error, not try to compensate per your own plan.