DEPRECIATION PERIOD DEPENDS ON ASSET'S CLASSIFICATION

A recent ruling by the IRS Chief Counsel serves to remind businesses about the factors that figure into determining the length of a depreciation period.

The specific case involved a floating riverboat casino securely moored to the land. The IRS concluded that it is a commercial building that must be depreciated over 39 years, not a vessel, barge, tug or similar watercraft depreciable over 10 years (CCA 201225012).

Businesses should keep in mind that the IRS will apply six factors to determine whether an asset is a building or other inherently permanent structure, rather than tangible personal property. Tangible personal property is generally eligible for a shorter depreciation period.

The six factors are:

  • Is the property capable of being moved, and has it in fact been moved?
  • Is the property designed or constructed to remain permanently in place?
  • Are there circumstances that tend to show the expected or intended length of affixation or that show the property may, or will, have to be moved?
  • How substantial would the job of property removal be, and how time-consuming would it be?
  • How much damage will the property sustain upon its removal?
  • What is the manner of affixation of the property to the land?
 
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