Word of the day: Accelerated depreciation
Generally, for most business property, with the exception of real estate, it is legal to depreciate the cost at a rate faster than would be allowed under straight-line depreciation.
For example, cars and computers are assumed to have a five-year life span for tax purposes. With straight-line depreciation, you would be permitted to write off 20% of the cost each year. The accelerated method generally lets you deduct 20% of the business cost the first year, 32% the second, 19.2% the third, 11.52%Â in years four and five, and the remaining 5.8% in the sixth year.
It takes six years to fully depreciate the property, thanks to the “midyear” convention, which assumes that business assets are put into service in the middle of the year.
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