We support legislative efforts to strengthen the depreciation and recapture provisions applicable to the sale of real property by rejecting or repealing discriminatory provisions which limit or disallow existing deductions and by making subject to recapture only that portion of depreciation taken that exceeds
straight line depreciation. We also support legislation that would reduce the tax on depreciation recapture to the capital gains tax rate of 15 percent.
If the taxpayer does not use cost segregation, it must use
straight line depreciation over 39 years.
For the same asset, the use of
straight line depreciation, higher salvage values or longer useful lives will result in higher carrying values and thus increased probability of recognizable impairment losses.
On the other hand, when a company purchases equipment and uses the
straight line depreciation method for regular tax purposes, a depreciation preference is not created.
312(k), which allows for the computation of basis using
straight line depreciation if the taxpayer's current basis has been determined by the use of accelerated depreciation.
Leasing is preferable to buying: the higher the asset cost, the lower the lease payments, the lower the tax rate, the higher the after-tax cost of equivalent financing, the lower the salvage value, and if
straight line depreciation is used.
These changes would require the disclosure of all liabilities on the balance sheet, replacing straight line rent expenses with
straight line depreciation and imputed interest, front ending liabilities of leases to tenants that will likely result in substantially shorter leases.
The Institute supports legislative efforts to strengthen the depreciation and recapture provisions applicable to the sale of real property by rejecting or repealing discriminatory provisions that limit or disallow existing deductions and by making subject to recapture only that portion of depreciation taken that exceeds
straight line depreciation. It also supports legislation that would reduce the tax on depreciation recapture to the capital gains rate of 15 percent.
