Depreciation on property for sale...

[equinecpa]

I have a client who moved her business in 2008. The property from which she ran her business until June 2008 is for sale. Does she claim depreciation on the property until it is sold or until the date she stopped using it for the business?

[Bees Knees]

TTB page 9-21:

Idle Property
Continue to claim a deduction for depreciation on property even
if it is temporarily idle. For example, if use of a machine stops
because there is a temporary lack of a market for a product made
with the machine, continue to deduct depreciation.

In contrast, TTB page 9-21:

Abandonment
When an asset is abandoned, loss is recognized in the amount of
adjusted basis at the time of abandonment. In order to qualify, the
intent of the taxpayer must be irrevocably to discard the asset so
that it will neither be used again nor retrieved for sale, exchange,
or other disposition.

I would say property not used because it is on the market to be sold is similar to Idle Property. It isn't abandoned property yet because if it does not sell, the taxpayer could later decide to start using it again for business. Thus, depreciation continues until sold or abandoned.

[Snaggletooth]

Recovery Property

At one time, depreciable property was called "Recovery" property, and even purported that moniker during its passage in congressional bills. As a matter of fact, the "R" in MACRS and ACRS stands for "Recovery."

The concept, at least in tax verbiage promulgated in the '80's, was that the "recovery" deduction stood for how long a buyer could recover his investment through depreciation. We were taught to think of the recovery deduction in terms of length in years, rather than use or disuse, and to put behind us concepts of "units of production" depreciation and write offs based on usage.

I think the "recovery" concept still applies. There would have to be a compelling reason, or one mandated by statute (such as the abandonment example) in order to summarily cease depreciating an asset.

[Davc]

Disagree. The OP indicates the intent is to no longer use the property for the business.

[erchess]

Sale

When the taxpayer does sell the property the rule will be depreciation allowed or allowable. I would claim the questionable depreciation on the present return and factor that in at the time of sale or abandonment. I can however, understand why someone else would not claim it on the present return and then not factor it in on sale or abandonment. However, I hope no one would deny it to the client in the present and then factor it in on sale or abandonment.

[Bees Knees]

Disagree. The OP indicates the intent is to no longer use the property for the business.

If the TP abandoned the property with the intent to no longer use it, then depreciation stops. In this case, the TP has not abandoned the property. Thus the intent to no longer use it is irrelevant. Depreciation continues.

[Davc]

Note the word temporarily in your TTB quote above.

Here's something from BNA:

Note: In some cases, whether property is a business asset or inventory is a close question, requiring careful review of the facts to identify the property's character.

Example—Inventory v. Business Asset
M Corp. is in the business of leasing cars which are sold at the end of their useful lives when they are no longer profitable to lease. M does not have any facilities to sell cars, such as a showroom, a used car lot, or a sales force. Instead, M sells its cars through wholesalers or by similar arrangements that do not contemplate a dealer's profit. M may treat these cars as depreciable property because the cars are not held primarily for sale to customers in the ordinary course of its business. If M buys cars at wholesale prices, leases them for a short time, and then sells them at retail or in sales that contemplate a dealer's profit, these cars are treated as inventory rather than depreciable property. It is also possible that M's cars will have a dual character, being treated as depreciable during the period M's cars are used in its leasing business, and then treated as inventory when leases expire and the cars are converted to property held for sale to customers. 9