Category Deduction Depreciation/Amortization Period
Inventory When sold N/A
Fixed Assets Depreciate 5 to 7 years
(machinery, shop furniture, company vehicles)
Intangible Assets Amortize 15 years
(goodwill, franchise value, customer lists)
Non-Compete Agreement Amortize 15 years
Land None N/A
Land Improvements Depreciate 15 years
Buildings Depreciate 39 years*
Other Expenses Resulting from the Purchase:
Rental Expense Deduct As paid
Consulting Expenses Deduct As paid
Wages to the Seller Deduct As paid
Note: The Tax Increase Prevention Act of 2014 has increased the election to expense rather than capitalize certain eligible property. The maximum section 179 expense is $500,000 for 2014. Eligible dealership property includes machinery and shop equipment, computer equipment, furniture and land improvements. A dealership can not use the section 179 deduction to create a taxable loss for the year.
The Act also allows a dealership to take bonus depreciation equal to 50% of the cost of eligible property for 2014. The eligible property must be original use property (new). Therefore, a dealer that acquires eligible property from another dealer would not qualify. *A dealer can reduce the allocation to 39 year property by performing a cost segregation study. Please see the article Defer Taxes by Performing a Cost Segregation Study for more information.
For more information, please e-mail Paul McGovern at pmcgovern@downeycocpa.com or call him at 800-849-6200.
