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The amounts allowed for a section 179 deduction have increased tremendously in the past few years. For federal tax purposes and in accordance with IRC section 179, you can opt for an asset expense election. When you depreciate property you need to recover the cost of property that will have useful life of more than one year. You don’t have a choice really. When you buy property, your property will be useful for many years. So it is only fair that you expense the item over the time for which it will be useful. This is called depreciation. Many expenses need to be matched to the income that it generates. If you buy property to be used in your business, the cost of this property needs to be spread out to the periods in which it was used. This concept of matching expenses to the income generated can be seen in other items too, such prepaid items. So if you prepay your rent, for example, it only makes sense that the rent be match to the corresponding periods. The same is true for property that you will use for a number of years. All that said, there is a special rule when it comes depreciating property. You can elect to recover the cost of property ahead of time. Both federal and California have this benefit available. This is called section 179 deduction. You elect to deduct the entire cost of the property or you can elect to deduct only a part of it. However, for federal there is a maximum limit that you can deduct and this limit usually cannot be over $500,000. There are other limitations you must obey. For example, if the value of the property exceeds $2,000,000, you must reduce your section 179 by the amount that is over $2,000,000 and your section 179 deduction will be reduced to zero if the value of your property placed in service in 2014 is more than $2,500,000. This is for federal tax purposes though.

MACRS stands for Modified Accelerated Cost Recovery System. Most property is subject to MACRS depreciation deduction and must be depreciated according to the schedule set by the Internal Revenue Service. MACRS is the accelerated depreciation system used for assets placed in service after 1986. It stands for Modified Accelerated Cost Recovery System. This depreciation system is composed of two other depreciation systems and they are the General Depreciation Systems (GDS) and the Alternative Depreciation System (ADS). You have a choice if you want to use these systems instead of the MACRS system. There are limitations on which properties can be depreciated using the MACRS depreciation system so pay close attention when you are depreciating your property to make sure you are indeed using the correct depreciation system.

For California tax purposes the nonresidential real property recovery period is different. You need to know that the recovery period is 39 years for California tax purposes. California did not conform to federal but now California and federal are in conformity as to the recovery period. California started conforming to the federal recovery period on January 1, 1997. Before this, the recovery period was 31.5 years for California. So any property that was placed in service before January 1, 1997 (but after May 13, 1993) should continue to be depreciated using the old California recovery period of 31.5 years. Therefore, if you have a property which was placed in service before the California

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