Are commercial rebates taxable?

[Zee]

Our Commercial Community Association (Boat Rack-o-Minium) installed a boat waste removal system at a cost of about $20,000. $15,000 of that cost was recovered from the State Department of Environmental Protection via a rebate. IMHO, the $15,000 is other income and the $20,000 should be capitalized & depreciated, rather than reducing the cost of the asset, although the tax impact would be the same if Section 179 is selected. But, the books should reflect straight line depreciation and more accurately reflect asset values.

Our accountant reduced the purchase cost.

[Jesse]

I would think it would reduce basis and not considered income. But I have not researched - just an opinion.

[Zee]

I would think it would reduce basis and not considered income. But I have not researched - just an opinion.

I would agree if the rebate was received from the manufacturer or seller, I'm not sure when it's received from a 3rd party (in this case a State Agency). I'm going to have to check further, but it may actually be a grant, rather than a rebate although the property manager has used the term rebate.

UPDATE: I have learned it was a state grant. IMHO, it would be taxable in most situations. Our Commercial Community Association is an 1120 not for profit, and this wouldn't constitute UBIT or result in any additional income tax in our situation.

I'm primarily concerned about the financial statement presentation and believe treating the grant as income and including the full cost of the acquisition as a capital cost results in more accurate financial reporting.

[BOB W]

I agree with Zee> besides the state may issue a 1099 or something simular for the credit. This could cause a matching problem down the road.

[Zee]

I agree with Zee> besides the state may issue a 1099 or something simular for the credit. This could cause a matching problem down the road.

Now I'm wondering if the most accurate financial reporting treatment would be treating the grant as deferred income amortizing it over the same life as the asset, and recording the full cost of the asset, depreciating it, etc.

[BOB W]

Can I assume they are NOT on a "Cash Basis" method of accounting?

[Zee]

Can I assume they are NOT on a "Cash Basis" method of accounting?

Yes, of course. I should have made that clear, but didn't want to edit too many times.