What is Accelerated Depreciation?
As a means of securing faster tax credits on assets, the concept of accelerated depreciation has long been a common practice. Essentially, accelerated depreciation allows the owner to take larger write-offs for the depreciation of selected goods and properties early on, with the understanding that the same goods and properties will not be eligible for the same level of depreciation in later years. Here are some basics on the way depreciation works, and how accelerated depreciation can sometimes make a lot of sense. The basic idea behind depreciation is that as any good or property ages, there is some wear and tear that could very well make the item of less value. Depreciation takes into account that decreased worth and allows businesses to register a fair and equitable current value when assessing the overall net worth of the company. That amount of depreciation is often allowed as a tax deduction for that particular calendar year. Accelerated depreciation simply allows the owner to ta
The most common method for property with a recovery period of 3, 5, or 7 years is the 200% declining balance (200% DB or DDB) method. Property with a longer recovery period may use 150% DB or 125% DB, and you generally have the option of depreciating property over a longer period of time, and always have the option of using a less accelerated method, if you select the method on the first tax return in which it’s depreciated. For our example; the normal depreciation rate is 20% of the original value — so 200% DB would mean that we deduct 40% of the current value; but returning to straight line over the remaining life when that’s faster. Columns are: 1: current year straight line deduction for comparison 2: Current year accelerated deduction 3: Remaining non-deducted value 4: Remaining life (years) 5: 200% DB deduction 6: SL deduction for the remaining life (If the Epinions ? bug is back that character represents one half.) Year 1: $1,000.00 | $2,000.00 | $8,000.00 | 4 | $3,200.00 | $1,
