The value of the property can be estimated by: comparing the sales prices of comparable properties; by capitalizing the net income it produces; by calculating its original cost less book depreciation
; or by calculating its cost afresh less depreciation.
704( b) book depreciation
. If any tax depreciation remains to be allocated, move on to step S.
This is the difference between tax depreciation ($100,000) as compared to book depreciation
Most companies use the lives authorized for tax depreciation for the book depreciation
, thus avoiding deferred tax entries.
Accordingly, the taxable income allocated to the Dutch banks was greater than their book allocation by the amount of book depreciation
for that year.
The authors interpret the first summation as: "the present value of all future tax reductions resulting from depreciating the asset for tax purposes (128)." With regard to the second summation, they write: "The second term, relating to book depreciation
is not so easily interpreted.
Also reported here, and separately identified, is any difference in depreciation to the extent book depreciation
exceeds tax depreciation.
We also demonstrate that the value of the DTL is not equal to the present value of future deferred tax expenses because the value of the DTL only depends on cash flows associated with tax depreciation, whereas the changes in the DTL depend on both tax and book depreciation
. Finally, we show that these results do not depend on whether the benefits of rapid tax depreciation (relative to economic depreciation) are capitalized into asset prices.
Resistance is strong to the proposal to remove allowances for investment in plant and machinery in excess of book depreciation
, but only $12.50 of tax depreciation.(78)
The remaining portion of th partnership's book basis ($150) will be depreciated over the new recovery perio of 10 years, for total annual book depreciation
of $25 (tax depreciation $10 plus additional depreciation of $15) The book depreciation
would be allocated $12.50 each to D and P.