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Show Depreciation No Longer Allowed (as you know it) Probably the most significant section of the , Economic Tax Recovery Act of 1981 is the new Ac-celerated Ac-celerated Cost Recovery System (ACRS). This system i. substitutes "recovery" deductions for "depreciation" of business property. Two very important aspects of the system are that ACRS is mandatory, not elective, and that it is retroactive to January l, 1981. The law divides business property into classes and specifies the percentage of cost that can be deducted each year for each class. Generally, equipment is written off over three years (autos and light duty trucks) or five years (most other equipment). Real property is written off over 15 years. Instead of regular ACRS deduction, taxpayers can choose a special straight-line deduction over designated periods for each class. Whether equipment is placed in service in January or December, the first-year deduction under the new law is the same. For example, if you purchased a business vehicle for $9,000 anytime in 1981 even on December 31 you can deduct 25 percent or $2 250 under the regular ACRS method or $1,500 under the straight-line ACRS method. Taxpayers can take advantage of this fact by making equipment purchases before the end of the year and getting the first year's recovery deduction in 1981. First year bonus depreciation is eliminated for 1981 and will be replaced in 1982 and 1983 by an election to expense up to $5,000 of equipment cost ($7,500 in 1984 and 1985, $10,000 in 1986 and thereafter.) Therefore if you purchase a $9,000 vehicle in 1982, you can elect to write off the first $5,000 instead of taking a regular first year ACRS deduction. Some other cost recovery options exist under the new law; review your specific situation with your tax advisor to be sure the right choices are made. |