Off to Two Mines
(Page 5 of 5)
Investment credit: 10% of the cost of
business property that will last five years or more may be
deducted in the year the equipment is purchased. Business
property that is figured to last three years (cars, for
example) entitles the purchaser to a credit equal to 6% of
the cost.
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Recapture: If property that is being or
has been depreciated is sold for more than the basis in
that property (cost, plus capital improvements, minus
depreciation), the portion of the difference equal to the
depreciation deduction must be reported as ordinary income.
Thus the depreciation is recaptured. See special rules for
recapture of first-year expensing if property is held less
than two years and for investment tax credit if property is
held less than five years.
Straight-line election: Property may be
depreciated by claiming an equal percentage of its cost in
each year of its life. For example, five-year property
would be claimed at a rate of 20% each year, assuming that
the property was put into service on January 1 of the first
year of depreciation.
Zero bracket amount: The name the IRS uses
for its alternative to itemizing deductions. (This formerly
was called the standard deduction.) If you do not itemize,
this amount is figured into the tax table you use. If you
do itemize, the zero bracket amount must be subtracted from
your total itemized deductions on Schedule A.
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