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Trouble With US Tax Depreciation Rates

I apologize in advance that I'm so new to this -- technically this should be our FI/CO team asking the question -- but I'm tired of waiting for answers and need a solution fast.

Because the US company that I work for formed in April fo 2006, that has affected the way we must account for Tax Depreciation going forward... trouble is, I can't seem to figure out how to configure SAP to account for these changes. I suspect it has something to do with Period Control Method.

Normally, a 7-yr MACRS asset would depreciate at 14.29% in year one. But in our case, that same asset can only depreciate at 8/12ths of 14.29% for year one because the company was only in operation for the last 8 months of 2006.

In year two, this asset depreciates at 4/12ths of 14.29% and 8/12ths of 24.49%. Ultimately, we get to take that full 14.29%, but it is pro-rated and spread out across Year 1 and Year 2.

This calculation will continue on all assets acquired as of start-up in 2006 thru December of 2006 until those assets are fully depreciated. For any assets acquired from Jan 1, 2007 and later, this is not a problem.

Another way to think of this problem is this ---

Our company started in April, but operates on a Calendar Year Fiscal Year... January to December. What I essentially need to do is figuratively "shift" the fiscal period for Tax Depreciation to a "May to April" year.

I'm under incredible pressure to get this fixed asap, so any help / advice / solutions you can offer is MOST appreciated!!!

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  • Posted on Sep 21, 2007 at 06:59 PM


    IRS 946 doesn't specify rates and it doesn't say that you get "half" of the Double rate (which is how most people quote MACRS). It says that property will depreciate from the middle of the year which is exactly how SAP does it. In a more typical scenario, it doesn't really matter when the asset was acquired during the year because they all start depreciating at the same time (excluding a mid-quarter scenario). But in my experience no two companies interpret GAAP or US Tax regs the same so it really doesn't matter... but I thought I would mention it just in case.

    Trying to solve your problem... you may have to define a May-April FYV and assign it to your tax books but I'm not 100% if that would solve the problem. If you're already live or have loaded assets I don't think you'll be able to change this.

    Worst case, you could configure a rate-specific depreciation key for each of the 12 possible monthly rates based on acquisitions. Assets purchased in April would depreciation for 9.5266%, May 8.3358%, etc.

    You might also be able to develop a custom changeover method to control when it goes from one rate to the next.

    Either of these would require some testing (this is all off the top of my head).


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