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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 10469
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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This is for taxmanrog: We purchased a small company in 2012,

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This is for taxmanrog: We purchased a small company in 2012, asset purchase, for $5 million USD. Included in the asset purchase agreement was fixed assets, with net book value of $1million USD. Questions: Can we take this NBV as our beginning net tax COST and take bonus depreciation in 2012?

Lane :

Roger's not online right now (just checked the active expert list) ... I can help OR you can set Roget up on your home page as preferred expert (which will lock it for 24 hourse)... otherwise this will kick out to the question list anyway

Lane :

Let me know ...

Lane :

OK, still don't see him coming online; see this:

Lane :

Bonus Depreciation – This allows additional depreciation deductions equal to 50% of the adjusted basis of qualified property placed in service before January 1, 2014. Additionally, the remaining 50% of the cost is depreciated over the tax life of the asset. Most fixed asset purchases made by financial institutions other than real property would fall under the definition of qualified property; however the property’s “original use” must commence with the taxpayer – in other words, only new property will qualify. ... from another source (that qualifies new more thoroughly):

Lane :

The term original use generally means the first use of the asset. Simply put, the asset generally must be new, rather than pre-owned; however, there are some exceptions. New property initially used by a taxpayer for personal use and subsequently converted to business use meets the original-use requirement. Property acquired for use in a taxpayer’s business that was previously used by another taxpayer does not qualify regardless of how the previous owner used the property (i.e., for business or personal use). Capital expenditures to recondition or rebuild acquired or owned property satisfy the original use requirement, but purchases of reconditioned or rebuilt assets do not qualify. The determination of whether an asset is reconditioned or rebuilt (i.e., used) is a question of fact. However, an asset that contains used parts will not be considered used if the cost of the used parts is 20% or less of the total cost.

Lane :

You may also want to take a look at this: http://www.bakertilly.com/Bonus-Depreciations-Rules-2013

Lane :

I still don't see you coming into the chat session, so I'll move us to the "Q&A" mode. … Maybe that will help … (We can still continue a dialogue there, just not in real-time chat, as we can here)

Lane :

If this HAS helped, I would appreciate a feedback rating of 3 (OK) or better (excellent, is ideal)… That's the only way they will pay us here.


HOWEVER, if you need more on this, PLEASE COME BACK here, so you won't be charged for another question.

Lane :

Please let me know if you have any questions at all ...


Lane


Hi Kendrick,

... just checking back in here, as I never saw you come into the chat,

Let me know if you have questions,

Lane
Customer: replied 3 years ago.

Thank you for the explanation on bonus depreciation. I understand now that only new equipment is allowed for bonus depreciation. But you have not answered my other question: Can we take the net book value (NBV) as our beginning tax cost in the asset purchase? If not, what should be the starting tax value to depreciate with MACRS?


Hi Kendrick,

Yes, in an asset sale, the buyer uses purchase price (called Fair Value in an asset purchase).

Because assets were essentially identified and a purchase price was determined, there is a step up to that Fair Value.

The depreciated value that the seller had (in an asset sale) is irrelevant. If that happens to be what you purchased them for, then you (from a tax perspective) have a coincidence.

In an asset sale, it's the PURCHASE price (FV) of the asset that determine its value on the books of the purchaser.

Here's an excellent article: https://macabacus.com/accounting/types-of-acquisitions

 


Hope this helps

Lane

If this HAS helped, I would appreciate a feedback rating of 3 (OK) or better (excellent, is ideal)… That's the only way they will pay us here.

HOWEVER, if you need more on this, PLEASE COME BACK here, so you won't be charged for another question.

Lane and other Tax Specialists are ready to help you


Thanks much,

Let me know if I can help further

If you'd like to work with ME again just say "For Lane only," at the beginning of your next question

 

OR set me up as your preferred expert on your home page.

 

Regardless, thanks again,

 

Lane