Need advise on depreciating


M

M. B.

I am a professional self-employed musician (and have been
filing as Schedule C for the past 13 years). In January
2003, I purchased a new piano that cost $85,000. I would
like to depreciate it (100% for business use) but have a
few questions for the "experts".

I have the IRS publication 496, but I still need
clarification on the issues that I list below

1) What "table of class lives and recovery periods"
category does a piano (musical instrument) fall into? And
based on that, what choice in period of time that I can
choose? (pages 97- 106 of Publication 496)

2) Can I use either MACRS or ADS for my choice?

3) I am interested to have my depreciation % amount RISE
into the later years (as I am planning to make more money
later than now). Based on that, what deduction method would
then be suggested?

4) If this matters or not, I reside and file my taxes from
New York State and file jointly with my wife, who earns via
W2 for her profession.

Thanks for the help!
 
M

M. B.

M. B. said:
I am a professional self-employed musician (and have been
filing as Schedule C for the past 13 years). In January
2003, I purchased a new piano that cost $85,000. I would
like to depreciate it (100% for business use) but have a
few questions for the "experts".

I have the IRS publication 496, but I still need
clarification on the issues that I list below

1) What "table of class lives and recovery periods"
category does a piano (musical instrument) fall into? And
based on that, what choice in period of time that I can
choose? (pages 97- 106 of Publication 496)

2) Can I use either MACRS or ADS for my choice?

3) I am interested to have my depreciation % amount RISE
into the later years (as I am planning to make more money
later than now). Based on that, what deduction method would
then be suggested?

4) If this matters or not, I reside and file my taxes from
New York State and file jointly with my wife, who earns via
W2 for her profession.
Thanks for the replies.

So, from what I understand, for my piano I should do 7-year
depreciation, using Half-Year MACRS method in any of the
following 3 choosings: 200% Declining, 150% Declining or
Straight Line.

And it's not possible to depreciate it in 5 years. Correct?

Many thanks!
 
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C

Christopher Green

[snip]
Thanks for the replies.

So, from what I understand, for my piano I should do 7-year
depreciation, using Half-Year MACRS method in any of the
following 3 choosings: 200% Declining, 150% Declining or
Straight Line.

And it's not possible to depreciate it in 5 years. Correct?
7-year seems to be correct for MACRS: this is the MACRS
class life for otherwise unclassified property. Also, it is
the MACRS class life for furniture, which non-musicians
sometimes consider a piano to be.

The 200% method front-loads your depreciation more than the
150% method does. If you really want more of your
depreciation in later years (especially years 4-6), maybe
150% will work better for you.

The straight-line method limits your depreciation deduction
greatly: straight-line class life for unclassified property
is 12 years, not 7 (10 years if you consider it furniture);
also, you take straight-line depreciation on the difference
between basis and salvage value. The salvage value of a
12-year-old grand piano is going to be considerable, and it
would greatly reduce your straight-line depreciation.

On the other hand, if you depreciate the piano completely
under MACRS, you will owe tax when you sell it, because all
of the sale price will be gain taxed at ordinary income
rates. If you take only the straight-line depreciation, you
would owe tax only on the difference between sale price and
salvage value. (If you trade your piano in, you can work a
like-kind exchange, which will defer some or all of the
taxable gain.)
 

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