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evilmunkees
evilmunkees asked in Business & FinanceTaxesOther - Taxes · 9 years ago

Depreciation Question HELP PLEASE?

Aircraft parts are purchased for use in a rental business that rents them to movie studios. These parts often come back damaged and therefore, have a useful life of less than 4 years. Should these be classed as a property with a 3 year recovery period or maybe a 5 year property? I don't think the useful life is supposed to bear any weight on this.

I cannot find anything in the Internal Revenue Code to clarify this for me. Please help and explain your answer so I can research this myself!

Update:

The business rents them to movie studios for use as props. Therefore, these parts are used to generate income.

3 Answers

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  • figment_usa
    Lv 5
    9 years ago
    Favorite Answer

    For tax purposes, they would be 5 year property under MACRS. Once the property is destroyed or disposed of, depreciation stops and the remaining basis will be recovered through Form 4797.

    See links below. Pub 946, Page 104, Asset Class 00.21 for class life and Page 7 for when depreciation ends.

    Pub 544 discusses how to compute the gain or loss upon disposition of the asset.

    Source(s): http://www.irs.gov/pub/irs-pdf/p946.pdf http://www.irs.gov/publications/p544/index.html
  • Anonymous
    9 years ago

    I assume they rent the aircraft not the parts. Most parts would be expensed and not depreciated as repair costs that do NOT significantly increase the life of the asset.

    If it's the parts themselves, It's hard to see how they would be damaged, but if so the repair costs would be expensed and they would continue on their normal useful life. That varies greatly depending on what it is. Engines are vastly different than instrument panels. A piece of a tail assembly would be expensed, period.

  • tro
    Lv 7
    9 years ago

    like any equipment rental business, you depreciate according to the guidelines of the depreciation schedules, each asset has a life time, some 3, some 5, some 7,some 10 etc

    you depreciate each as it exists and if you have to get rid of it early due to mishandling, you simply close out that asset and determine your gain or loss on it

    you have asked in two areas and the responses will be the same

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