Need advise on depreciating

Discussion in 'Tax' started by M. B., Feb 16, 2004.

  1. M. B.

    M. B. Guest

    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. B., Feb 16, 2004
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  2. M. B.

    M. B. Guest

    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!
    M. B., Feb 17, 2004
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  3. [snip]
    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.)
    Christopher Green, Feb 19, 2004
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