Accelerated depreciation is a method for allocating the cost of an asset in a manner that provides greater deductions in the earlier years of the asset's life. This method is advantageous for tax purposes, offering businesses the opportunity to defer tax payments.
Declining Balance Depreciation is a method of depreciation, often used for income tax purposes, whereby a rate is applied to the remaining balance to derive the depreciation deduction. Compare with Accelerated Depreciation. See Modified Accelerated Cost Recovery System.
Depreciation recapture refers to the process of collecting income tax on gains made through the sale of depreciable property, where deductions for accelerated depreciation exceed via recapture in accordance with Section 1250 of the Internal Revenue Code.
Double Declining Balance (DDB) is an accelerated method of depreciation used for tax purposes, applying twice the straight-line depreciation rate to the remaining book value of an asset.
Excess accelerated depreciation refers to the accumulated difference between accelerated depreciation claimed for tax purposes and what straight-line depreciation would have been. It's typically recaptured as ordinary income upon sale instead of receiving more favorable capital gains treatment.
The Modified Accelerated Cost Recovery System (MACRS) is the current tax depreciation system in the United States permitting a faster write-off of the capital expenses of tangible personal and real property. Enacted by the Tax Reform Act of 1986, MACRS allows for greater accelerated depreciation, with the intention of encouraging investment in business assets by offering a larger depreciation deduction in the early years of an asset’s life and lower deductions later on.
Section 1250 is a part of the Internal Revenue Code that deals with gains from real estate where accelerated depreciation has been claimed. Although its significance has been reduced after 1986, it remains relevant for dealing with gains involved in real estate transactions.
The Sum-of-Years'-Digits (SYD) depreciation method is a technique used in accounting to allocate the cost of an asset over its useful life in an accelerated manner. This method results in higher depreciation expenses in the earlier years and lower expenses in the later years.
