Choosing the best amortization guide depends on the taxpayer’s country of residence and asset type. Government agencies are the most authoritative source, but private guides can be useful. Tax authorities provide publications on depreciation, including asset classification and repayment methods. The US uses the Modified Accelerated Cost Recovery System, and repayment methods include straight-line, declining balance, and activity-based.
Choosing the best amortization guide will depend on the taxpayer’s country of residence and the type of assets being depreciated. Every country has a tax authority, and these agencies have published guidance addressing depreciation and would therefore be the most authoritative source. These can be obtained through the Internet or by calling or writing individual government agencies.
There are several private depreciation guides available that are published annually, such as the US Master Depreciation Guide, available online or at major bookstores. Additional depreciation guides are published online or in book format and may be useful as supplemental information. However, the best depreciation guide will be the one produced by government agencies.
For example, the Internal Revenue Service (IRS) in the United States, Her Majesty’s Revenue and Customs in the United Kingdom, and the Australian Revenue Office in Australia are all tax authorities. A resident of any country that offers depreciation as a tax deduction may request a depreciation guide from that country’s tax authority. In many cases, an amortization guide can be downloaded directly from the tax authority’s website. Access to tax authority websites can be found online by searching for the specific country and using “tax authority” or “depreciation” in the search field. Each of the websites will be in the native language of the specified country.
The Australian Taxation Office provides a publication called A Guide to Depreciation of Assets, and the IRS has several publications that provide information on depreciation. These include Publication 946, Depreciating Property; Publication 534, Depreciation of property placed in service before 1987; and Publication 527, Residential Rental Property. These guides address topics such as which assets can be depreciated, the asset’s useful life for allowable depreciation, and allowable depreciation methods.
A depreciation guide will describe the system used. In the United States, most assets fall under the Modified Accelerated Cost Recovery System (MACRS). Under this system, assets used in business or for an income-generating activity are classified into different useful life groups. For example, most office equipment and vehicles have a five-year payback period, while office furniture has a seven-year payback period, landscaping and improvements have a 15-year payback period, and rental property residential is 27.5 years old.
Various types of repayment methods are listed in the repayment guide. These include straight-line depreciation, declining balance, and activity-based depreciation. Depreciation over the life of the asset is based on the cost or investment value of the asset, so the total depreciation allowed will be the same in either method, although the timing will be different. In the straight-line method, there is an equal depreciation assessment each year, whereas in the declining-balance method, more depreciation is deducted in early years and less in later years. The activity-based method determines depreciation based on how much the asset is used, such as the mileage on a vehicle or the amount of product generated by a machine.
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