Choosing the best depreciation guide depends on the country and type of assets. Government agencies offer the most authoritative sources, but private guides can be useful. Different methods of depreciation are listed, including straight-line, declining balance, and asset-based.
Choosing the best depreciation guide will depend on the country of residence of the taxpayer and the type of assets being depreciated. Every country has a tax authority and these agencies have published guides that address depreciation and would therefore be the most authoritative source. These can be obtained through the Internet or by calling or writing to individual government agencies.
There are several private depreciation guides published annually, such as the US Master Depreciation Guide, available online or in major bookstores. Additional depreciation guides are published online or in book format and may be useful as supplemental information. The best guide to depreciation, however, will be 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 Taxation Office in Australia are all tax authorities. A resident of a country that offers depreciation as a tax deduction can request a depreciation guide from that country’s tax authority. In many cases, a depreciation 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 Guide to Depreciating Assets and the IRS has several publications providing information on depreciation. These include Publication 946, How to Depreciate Property; Publication 534, Depreciation of Properties Placed in Service Before 1987; and Publication 527, Residential Leasehold Properties. These guides address topics such as which assets can be depreciated, the life span of assets for eligible depreciation, and methods of eligible depreciation.
A depreciation guide will explain the system used. In the US, most assets fall under the Modified Accelerated Cost Recovery System (MACRS). In this system, assets used on the farm or for an income-producing activity are classified into different groups of useful lives. 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 15 years, and residential rental property he is 27.5 years old.
Different types of depreciation methods are listed in the depreciation guide. These include straight-line depreciation, declining balance, and asset-based depreciation. Depreciation over the life of the asset is based on the asset’s cost or investment value, so the total allowable depreciation will be the same in any method, even if the timing will be different. In the straight line method, there is an equal assessment of depreciation each year, whereas in the declining balance method, more depreciation is deducted in the early years and less in the later years. The asset-based method determines depreciation based on the amount of use of the asset, such as the mileage of a vehicle or the amount of product generated by a machine.
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