Depreciation

WASHINGTON -- If you own any type of investment real estate -- a small rental condo, a place at the beach, an apartment building -- you could be directly affected by a controversial capital-gains tax proposal under discussion here by congressional and Clinton administration budget balancers.Sources close to the budget negotiations confirm that to raise revenue while cutting overall capital gains taxes, negotiators have seriously considered eliminating a key, traditional benefit enjoyed by real estate owners.

Leasing equipment, vehicles or furniture is an attractive option for many small businesses because it can provide more benefits than outright purchase. It depends on the type of equipment, your expected needs and the lease arrangement. Equipment lease payments may be lower than the monthly costs to pay for the assets. But over the life of the lease, you will generally end up spending more than the equipment's purchase price. The result can help improve the cash flow of a business. One drawback in leasing is the loss of the tax benefits that accrue from the capital depreciation of major items such as buildings, major equipment, computers and vehicles.

Owners of business computers will get a break beginning Jan. 1, when Maryland adopts faster depreciation schedules for computers that will cut their owners' personal property taxes.All but four Maryland counties tax business personal property, as does Baltimore City, said Ronald W. Weinholt, director of the state Department of Assessments and Taxation.But state officials believed the former policy of assuming that computers lose 20 percent of their value each year, until their owners pay taxes on only 25 percent of their cost, was not keeping up with how fast new technology is making old computers obsolete.

DETROIT -- Laurel Mathews pampered the Jeep Cherokee she bought barely used from a dealer in 2003 - stringent maintenance, wax-and-polish cleanings, oil changes every 2,000 miles. Given the meticulous care - and the SUV's $15,000-plus price tag - the Upstate New Yorker was more than dismayed when she tried to sell her Jeep two years later. "I couldn't get more than $5,000," she said. "It was in perfect condition. That was my baby. I was horrified." Mathews' experience is shared by many in the nation's car-buying public and has become a big problem for Detroit's automakers.

VIRGINIA NATURAL Gas seems to need a new propane plant, and it probably needs it pretty soon. But if the company had any doubts about whether to hurry up and finish the $30 million project roughly in time for next year's election, President Bush removed them May 28. By signing the Jobs and Growth Act of 2003, Bush dangled irresistible incentives before VNG and thousands of other companies to switch investments that might have been planned for 2005 or...

The Rouse Co. said yesterday that its key earnings measure rose 27 percent during the first quarter, driven by a tripling of income from its office buildings and a near-doubling of profits from land sales in Columbia.Columbia-based Rouse said it earned $29.3 million before depreciation and deferred taxes, up from $23.1 million in the first three months of 1995. The company posted a net income of $5.4 million, compared with a $7.9 million loss in last year's first quarter.Real estate analysts focus on pre-depreciation results because they say accounting rules distort development companies' financial health.

DETROIT -- Laurel Mathews pampered the Jeep Cherokee she bought barely used from a dealer in 2003 - stringent maintenance, wax-and-polish cleanings, oil changes every 2,000 miles. Given the meticulous care - and the SUV's $15,000-plus price tag - the Upstate New Yorker was more than dismayed when she tried to sell her Jeep two years later. "I couldn't get more than $5,000," she said. "It was in perfect condition. That was my baby. I was horrified." Mathews' experience is shared by many in the nation's car-buying public and has become a big problem for Detroit's automakers.

Each Wednesday through April 21, baltimoresun.com's tax experts will answer your questions this tax-filing season. Our experts are Jim Dupree of the Maryland office of the Internal Revenue Service in Baltimore and, this week, Nicole M. Harrell, head of her own accounting firm in Baltimore. To be included next week, please use the form at the right side of this page to submit your questions. I sold my home, my primary residence, in 2003 and qualified to ignore the gain on the sale for tax purposes.

Suppose you own a business regulated by a government that protected you from competition in a system in which your customers and shareholders paid for your plants.Now suppose the government decides to end your monopoly and open your business to competition, making you liable for plants that haven't been fully depreciated on your books.What would you do?If you are Maryland's four investor-owned electric utilities, you would want customers to pay for more than $2 billion in plant depreciation -- "the stranded costs" of the government's decision to deregulate the power industry.

The Rouse Co. of Columbia released its interim report to shareholders for the second quarter of 1991.Total earnings for the first half of 1991 before depreciation and deferred taxes were $19,761,000, 2 percent more than the $19,388,000 recorded in the first half of last year.For the second quarter, earnings before depreciation and deferredtaxes were $9,075,000, a 6-percent increase over $8,544,000 in 1990'ssecond quarter -- April through June.The net loss for the six months was $8,462,000, compared to a net loss of $3,965,000 in the first half of 1990.

FORT LAUDERDALE, Fla. -- Here's an item you may have left out of your personal budget: The average cost of driving a car is now $7,834 a year. AAA released its annual survey yesterday about the average costs of owning passenger cars that are driven 15,000 miles a year. The average driving cost - a mix of expenses for small, medium and large passenger cars - works out to $150 a week. And that's not just because the price of gasoline is hovering around $2.50 in the nation. The AAA survey factors in gasoline at 9.5 cents a mile based on a $2.40 a gallon average price nationwide at the end of 2005.

Each Wednesday through April 21, baltimoresun.com's tax experts will answer your questions this tax-filing season. Our experts are Jim Dupree of the Maryland office of the Internal Revenue Service in Baltimore and, this week, Nicole M. Harrell, head of her own accounting firm in Baltimore. To be included next week, please use the form at the right side of this page to submit your questions. I sold my home, my primary residence, in 2003 and qualified to ignore the gain on the sale for tax purposes.

VIRGINIA NATURAL Gas seems to need a new propane plant, and it probably needs it pretty soon. But if the company had any doubts about whether to hurry up and finish the $30 million project roughly in time for next year's election, President Bush removed them May 28. By signing the Jobs and Growth Act of 2003, Bush dangled irresistible incentives before VNG and thousands of other companies to switch investments that might have been planned for 2005 or...

Verizon of Maryland Inc. officials told state regulators yesterday that as more competing telephone companies lease part of Verizon's network, the company expects its wires, switches and other equipment to wear faster. At Maryland Public Service Commission hearings into the way Verizon deals with competitors, company officials also said technology that quickly becomes outdated will add to its system's deterioration. Verizon, which owns 97 percent of the telephone wires in Maryland, wants to shorten the projected life span of its equipment in expectation of competition.

Dear Mr. Azrael:Do repairs affect market value for the property assessment. I have a pool that's in need of $7,000 worth of repairs. The property tax assessor will not reduce the property tax, saying the repairs are actually maintenance and do not affect the property tax value.James Skunda, SevernDear Mr. Skunda:The question is interesting, but it comes down to a judgment call. Ultimately, the condition of any improvement to a property, including your swimming pool, would be reflected in the assessor's depreciation allowance.

Members of the Maryland Association of Certified Public Accountants are answering readers' tax questions through April 15. See below for how to submit a question.I began renting my condo this year, on which I am still paying a mortgage. How should I handle this for tax year 1999?Landlords are taxable on the rental income they receive and are entitled to deduct the ordinary and necessary expenses involved with owning the property (e.g.: advertising, cleaning, commissions, insurance, repairs, taxes, utilities, etc.)

The Rouse Co. released figures showing that its third-quarter earnings before depreciation and deferred taxes from operations were down 24.7 percent from the same period a year before, although revenues were up 7.5 percent.For the first three quarters of the year, the real estate development company's earnings before depreciation and deferred taxes were $28,732,000, down 8.2 percent from the $31,307,000 figure recorded in the first three quarters of 1990.The net loss for the first nine months of 1991 was $12,579,000, compared with a net loss of $3,258,000 for the first nine months of last year.

The Rouse Co.The Rouse Co. released figures yesterday showing that its second-quarter earnings before depreciation and deferred taxes from operations were up 6.2 percent from the same period one year before. Revenues that were up 14.9 percent during the same period.For the first half, the real estate development company's comparableearnings were $19,761,000, up nearly 2 percent from the $19,388,000 figure recorded in the first half of 1990. Rouse officials developed the "earnings before depreciation and deferred taxes from operations" figure because they believe it gives shareholders the clearest measure of the company's status.

Suppose you own a business regulated by a government that protected you from competition in a system in which your customers and shareholders paid for your plants.Now suppose the government decides to end your monopoly and open your business to competition, making you liable for plants that haven't been fully depreciated on your books.What would you do?If you are Maryland's four investor-owned electric utilities, you would want customers to pay for more than $2 billion in plant depreciation -- "the stranded costs" of the government's decision to deregulate the power industry.

MCI Communications Corp., the nation's second largest long-distance company, said yesterday that its first-quarter earnings were down 66 percent from the same quarter last year, due in part to a $137 million computer-equipment depreciation charge.The company reported $101 million in quarterly net income, or 14 cents per diluted share. Last year, MCI had $295 million in first-quarter net income, or 42 cents per diluted share.In addition to the depreciation charge, MCI's earnings also reflected a $51 million gain from the company's investment in Brooks Fiber Properties Inc. This gain was realized when another big long-distance firm, WorldCom Inc., bought Brooks Fiber.