Depreciation challenge

[JenMO]

I have a new farm client. Depreciation on agricultural assests is 150DB. The previous preparer used DDB. When putting into my program, do I change the asset to 150DB for the rest of the years, put in deprec taken under DDB and go on, or do I put in DDB and continue in the manner in which it was started?

[Gretel]

I think unless you file form 3115 for change in accounting method you will need to continue how it was started. If it was just for last year you could amend.

[JenMO]

It's for years back to 2006. Breeding cows are five years, and preparer did 3. Must not have looked at the Farm Pub

[AJsTax]

One year

wrong depreciation schedule does not require a change in accounting methods. More than one year would require a change form. I would not change the others. You do not need to amend for assets started in 2008, just fix them and record the prior depreciation so that the item is not over depreciated.
Depreciation is an estimate anyways. There are many options to use. Most of the items could be taken as Sec 179 expense anyway, so a three year instead of five year is not a big deal.
Should it be done correctly?? sure, but it is not a huge mistake.

[Black Bart]

It's not a big deal,

I have a new farm client. Depreciation on agricultural assests is 150DB. The previous preparer used DDB. When putting into my program, do I change the asset to 150DB for the rest of the years, put in deprec taken under DDB and go on, or do I put in DDB and continue in the manner in which it was started?

but you can't keep using 200% since doing it wrong once doesn't give you permission to keep on doing it wrong.

Just figure first year's depreciation at 150%, post it as prior years depreciation (that's the allowed or allowable amount no matter what was actually used), and go from there --.I've done it lots of times and you won't have any problems. Even if you did, the money's usually insignificant (almost never worth amending year one even if someone's conscience gets bent out of shape) . Too, IRS doesn't seem much interested in depreciation or schedules of depreciation (witness their instruction NOT to send 4562 unless something new is bought).

[Gretel]

I think I am missing something. If 200% was used for two years then client got to much expenses for these two years. Going forward using 150% will make it right from now on but the expenses taken too much will never be recovered by IRS unless the over-depreciation is taken into account when assets are sold (if sold at all).

Maybe I am just trying to make it too difficult and low $$ don't justify. Don't you think IRS can come back and slap you with preparer penalty? Where is the line?

[AJsTax]

I think I am missing something. If 200% was used for two years then client got to much expenses for these two years. Going forward using 150% will make it right from now on but the expenses taken too much will never be recovered by IRS unless the over-depreciation is taken into account when assets are sold (if sold at all).

Maybe I am just trying to make it too difficult and low $$ don't justify. Don't you think IRS can come back and slap you with preparer penalty? Where is the line?

Yes, you are trying to make it too difficult.
The extra depreciation cost will be made up because the depreciation will end a little sooner than if was done entirely in 150db.
No fear of a penalty in most of these cases. Value difference is so low and the fact that most of these assets could have qualified for the Sect 179 expense anyways makes it a moot point.
Depreciation is an estimate of the cost over the life of the asset. There are many options available for most (but not all) assets. Unless a TP is trying to write off very large assets without depreciating them or taking depreciation too fast to the point that it will materially affect the taxable income, the IRS does not pay much attention to depreciation.
With the special 30% and now 50% rates available for the first year of use, not counting the Sect 179, the asset may well have been depreciated at less than the absolute max allowed anyways even if 200 db was used instead of 150db.

[taxxcpa]

Prior depr

The only way that the client could depreciate more than 100% of cost would be to change the prior depreciation from the larger amount taken to the smaller amount that should have been taken.
The reverse effect would occur if he took too little in the first year or two and you increased the prior depreciation to the allowable amount, which would result in depreciation running out before 100% was recovered.

[Black Bart]

No, I don't think you are missing anything.

I think I am missing something. If 200% was used for two years then client got to much expenses for these two years. Going forward using 150% will make it right from now on but the expenses taken too much will never be recovered by IRS unless the over-depreciation is taken into account when assets are sold (if sold at all).

Maybe I am just trying to make it too difficult and low $$ don't justify. Don't you think IRS can come back and slap you with preparer penalty? Where is the line?

Nobody should have to defend doing the right thing and, strictly speaking, you are right. If the assets are sold before their depreciable life is expended, then those first two years were in fact over-depreciated and possibly had some taxable effect on other return items of income and expense at the time and those plus following years will never be exactly quite right. And, of course, if IRS wanted to be picky and speak strictly to us, they can, will, and have hit us with penalties.

But...I'm just saying, and as the other posters pointed out -- that as a practical matter I believe it has little effect unless there's a huge equipment investment. So, to me, it's a minor error that I don't have the time or inclination to correct and I'm not going to amend such things. But it certainly does not mean that you can't follow your own opinion about it and I commend you for speaking up.

[taxcraft]

Depreciation

My tax teacher, a long time ago, said to use depreciation "allowed" or "allowable". Leave depreciation mistakes alone, correct going forward, and when the asset is disposed of all will wash out.