Tax Aspects of Dealership Asset Purchases
Category Deduction Depreciation/Amortization Period
Inventory When sold N/A
Fixed Assets - machinery, shop
furniture, company vehicles Depreciate 5 to 7 years
Intangible Assets – goodwill,
franchise value, customer lists Amortize 15 years
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 Economic Stimulus Act of 2008, under IRS code section 179, has increased the election to expense rather than capitalize certain eligible property. The maximum section 179 expense is $250,000 for 2008. 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 maximum deduction will revert to $125,000 for 2009.
The Act also allows a dealership to take bonus depreciation equal to 50% of the cost of eligible property for 2008. 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.
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