Assets Whose Depreciation Starts in Earlier Tax Years 

Use

Sometimes you enter an asset transaction whose depreciation start date falls in the tax year before the asset value date. In order for the Property Tax Report to calculate these assets’ tax book values and tax evaluation amounts correctly, proceed as described in the following example.

Example

You purchase a lathe on February 1, 2006. You can start depreciating it from December 1, 2005, that is, two months before you purchased it.

In January 2006, you prepare the 2006 tax declaration (which shows your assets as at January 1, 2006). The lathe must not be included in the tax declaration, because you did not own it at that time. The Property Tax Report automatically excludes the lathe from the tax declaration.

In January 2007, you prepare the 2007 tax declaration. Before you do so, you:

...

       1.      Manually calculate the lathe’s tax book value and tax evaluation amount.

       2.      Make two postings to adjust (a) last year’s tax book value and (b) last year’s tax evaluation amount (see Changes to Last Year’s Tax Book Values and Evaluation Amounts).

When you run the Property Tax Report, it automatically calculates the lathe’s tax book value and tax evaluation amount as follows:

·        Tax book value

The report takes the adjustment posting that you have made as the starting tax book value. It depreciates this amount using the formula for assets in their second or subsequent years (see Calculation of Tax Book Values) and in the same way as post-capitalized assets (see Automatic Tax Depreciation for Post-Capitalized Assets).

·        Tax evaluation amount

The report takes the adjustment posting that you have made as the starting tax evaluation amount. It depreciates this amount in the same way as post-capitalized assets (see Automatic Tax Depreciation for Post-Capitalized Assets).