At this point, neither branch of Congress are close to getting a proposal of their committees, but I thought you would like to know what they are thinking. Most of the changes being proposed by Senator Max Baucus (D-MT), the top Senate taxwriter directly impact business who have responded angrily. Depreciation is a prime target. This has historically been an easy target since the rules are so complicated and it does not directly impact the general public. Here is what is being proposed:
- The time to write off for real estate would be lengthened from 39 years to 43 years.
- All other assets would be placed in to one of four depreciation pools based on useful lives and a set percentage of the costs of assets in each pool would be deducted each year. This means that you do not need to keep track of write-offs for each assets. If an asset is sold, the proceeds reduce the pool’s balance. If a pool falls below zero, the negative amount becomes ordinary income.
- The limit on expensing (Section 179) would be limited to $1 million and phase out after $2 million of assets are placed into service.
Here are some of the other proposed changes:
- Intangible assets – would be amortized over 20 years instead of 15.
- R&D costs – would be amortized over 5 years but smaller companies would be able to expense these costs.
- Advertising expense – a 60% deduction would be allowed in the first year and the remaining 40% gets amortized over a four year period.
- Inventory – no more LIFO. The income from the change in method would be recognized over an 8 year period.
Adopted from 12/6/13 The Kiplinger Tax Letter