Académique Documents
Professionnel Documents
Culture Documents
Straight Line
Dj = (IC SV ) / n , j = 1, 2, …, n
Declining Balance
DBR = 100%, 125%, …, or 200% (double)
p = DBR / n
Dj = pBVj -1 , j = 1, 2, …, n, while BVj SV
DB to SL Switch
Any switch
Treat current BV as IC and remaining years of
recovery as depreciation life
SL Depr = (current BV – SV ) / (Remaining Yrs)
Optimal switch for SV = 0 and constant tax rate
ST = Switch Time = First Integer n n /DBR
DST+1 = = Dn = (BVST – SV ) / (n – ST)
BVd R e c a p tu re = A R - B V d
Loss1231 = BVd - AR
P o s t- 1 9 8 6 S e c tio n 1 2 5 0
G a in 1 2 3 1 = A R B V d
BVd
Loss1231 = BVd AR
Overview of Taxation
Tax regulations interpret the tax code
TI = OI GLDs
Major types of taxpayers
Individual have AGI = GI – Adjustments
OI = AGI – Deductions – Exemptions
Corporate
OI = Revenues – Expenses
Project Expenses = Op costs + Depr + Depl
+ Sec 179 + Interest
Flow-through entities
Sole proprietor, partnerships, and Sub S corps
File reports, paid by individuals
Trusts and estates: usually no project activities
Individual Taxes: GI, Adjust, Deduct, and Exempt
GI All Individual Income + Proj Rev Proj Exp
AGI = GI Adjustments
Interest on student loans, payments into
qualified retirement plans, contributions to
cafeteria plans, alimony
Standard deductions for 2008
Single: $5,450 (single)
Married, filing jointly: $10,900
Choose max(standard, itemized)
Exemption for 2008
$3,500 for each dependent, including taxpayer
Individual Tax Schedule
Married Tax Schedule (Filing Jointly)
Corporate Taxes
Only individuals have adjustments, exemptions,
and standardized or itemized deductions
OI = Revenues Expenses, excluding GLDs
TI = OI GLDs
If corporation has net Section 1231 losses, then
treat each project's GLD as OI
If corporation has net Section 1231 gains, little
or no error by treating each project's GLD as OI
Reasonable approach for corporations
Not case for individuals
Corporate Tax Schedule
Between Pay Plus
0
0 15%
50,000
7,500 25%
75,000
13,750 34%
100,000
22,250 39%
335,000
113,900 34%
10,000,000
3,400,000 35%
15,000,000
5,150,000 38%
18,333,333
6,416,667 35%
Irregular progression due to compromises
Some bracket increases “delayed” and then
made up with “surcharges”
After Tax Analyses
Use marginal rates, not average rates
Combined marginal tax rate
State deductible from fed
= TRS + TRF(1 – TRS)
Mutually deductible
= (TRS + TRF 2 TRS TRF) / (1 TRS TRF)
ATCF = BTCF Tax payments + Tax savings
Rough estimate AT IRR BT IRR (1 – TR)
Analyses based on ATCF's use the AT AMRR
BTCF analyses utilize the BT AMRR.
ATCF for Purchases
BV0
Yr BTCF Dep / BV OI Tax ATCF
0 -IC IC Adj -IC
1 BT1 D1 BT1 D1 OI1 tOI BT1 Tax1
j BTj Dj BTj Dj Oij tOI BTj Taxj
n BTn Dn BTn Dn Oin tOI BTn Taxn
n AR BV0 Dj AR BVn GLD tD AR TaxD
BVn GLD
ATCF for Disposals
MV today BV today
GL0 = GLD0
C o m p u te C G L C o m p u t e S e c t io n 1 2 4 5 o r
o n p r o je c t 1 2 5 0 r e c a p t u r e . T a x a s O I.
C o m p u t e S e c t io n 1 2 3 1 g a in
o r lo s s o n p r o je c t .
N e t a ll C G L s
N e t S e c t io n 1 2 3 1 g a in s a n d
lo s s e s . R e c a p t u r e a n y p r io r
1 2 3 1 lo s s e s .
C o n s o lid a t e T re a t n e t 1 2 3 1 G a in N e t g a in o r
C G L s g a in a s L C G lo s s ?
L o ss
C S C G : T a xe d a t O I ra te D e d u ct n e t
S e c t io n 1 2 3 1
C L C G : In d iv - T a x e d a t C G r a t e lo s s f r o m O I
C o rp - T a xe d a t O I o r 3 5 % ra te
C S C L : In d iv - D e d u c t u p t o $ 3 , 0 0 0 a n d t h e n c a r r y a s S C L
C o rp - C a rry a s S C L
C L C L : In d iv - D e d u c t u p t o $ 3 , 0 0 0 a n d t h e n c a r r y a s L C L
C o rp - C a rry a s S C L
Effect of Gain or Loss Position on Taxes
Gain or loss position prior to a project can affect
the amount of its tax payment or tax savings, as
well as the timing of that cash flow
If the position is known at the time of the
analysis, then it should be recognized
If position is not known
Examine likely scenarios
Always in a gains position and business as
usual, then that position is most likely
Special circumstances can simplify analyses
Corporation in 35% or less bracket w/ only
Section 1231 losses and gains, then treat any
gain or loss on disposal as OI
Pre-1986 Tax Categories for Sec 1250 Disposals
AR Tax Treatment
AR < BVd Section 1231 loss = BVd AR
AR = BVd $0 Section 1231 gain or loss
BVd < AR BVd + Acc Section 1250 recapture = AR BVd
BVd + Acc < AR BV0 Section 1250 recapture = Acc
Section 1231 gain = AR (BVd + Acc)
Unrecaptured depreciation = AR (BVd + Acc)
BV0 < AR Section 1250 recapture = Acc
Section 1231 gain = AR (BVd + Acc)
Unrecaptured depreciation = BV0 (BVd + Acc)