Expensive Violin Depreciation

[taxtoddnyc]

Client is an up and coming violinist who purchased a 225 year old violin in 2005 for $125k. His preparer at the time did not begin depreciating via MACRS or SL, but rather started a Sec. 179 expense of his yearly installment payments of $4000-5000. Beyond the fact that it'll take 25 years to recoup the cost via this method, my temptation is to "start over" by entering the cost & year of purchase, thereby getting the nearly $18k of deduction going for this and future years (by treating it as a 7-year property.) Of course he loses a good deal of the prior depreciation amounts, but it somehow seems more correct to me. In the broader sense, does anyone know if there's some special provision in the code for depreciation of a valuable antique used for business? Thanks...

[schirallicpa]

I have a sticky note from a former colleage that has been posted on by board forever that says "fix depreciation under Rev Proc 2002-9." In fact, I have slid this description in on a return or 2. However, when googling Rev Proc 2002-9 it says something about change in acctg method.

Not sure if this is the least bit helpful.......And your numbers are bigger than my little fixes.

[kcjenkins]

Client is an up and coming violinist who purchased a 225 year old violin in 2005 for $125k. His preparer at the time did not begin depreciating via MACRS or SL, but rather started a Sec. 179 expense of his yearly installment payments of $4000-5000. Beyond the fact that it'll take 25 years to recoup the cost via this method, my temptation is to "start over" by entering the cost & year of purchase, thereby getting the nearly $18k of deduction going for this and future years (by treating it as a 7-year property.) Of course he loses a good deal of the prior depreciation amounts, but it somehow seems more correct to me. In the broader sense, does anyone know if there's some special provision in the code for depreciation of a valuable antique used for business? Thanks...

You may depreciate property that meets all five of the following tests.

It must be property you own.

It must be used in a business or other income–producing activity.

It must have a determinable useful life.

It must be expected to last more than one year.

It must not be excepted property. Excepted property (as described in Publication 946, How to Depreciate Property) includes certain intangible property, certain term interests, and property placed in service and disposed of in the same year.

Now, if this is a 225 year old instrument, I'd have a real problem with the third test. To be depreciable, your property must have a determinable useful life. This means that it must be something that wears out, decays, gets used up, becomes obsolete, or loses its value from natural causes. On it's face, this instrument just becomes more valuable over time, not less.

By the way, if you did do this, you would use Form 3115 to make the catch-up depreciation deduction.

[RoyDaleOne]

Antique musical instruments can be depreciated, cite available upon request.

[jasdlm]

Okay . . . I'll bite. Cite? I have a client with a $400,000 cello . . . never depreciated .

[taxtoddnyc]

Thanks, all..

After researching it further, it appears that as the result of a couple of court challenges 10 or 15 years ago, instruments of this kind are depreciable, though the IRS strongly contested the cases. They argued the point of the instrument becoming more valuable over time, but the court took a more narrow reading of the way the code was revised in '86, and said that all the conditions were met, including the one about "wear and tear". There are a couple of good articles at these sites, if anyone's interested:

http://www.polyphonic.org/article.php?id=30&page=1

http://nysscpa.org/cpajournal/1997/1197/dept/D681197.htm

Thanks for taking the time to answer... it's always reassuring to read your opinions, and I never fail to learn something here.