Rental Prop. Depr. / Prior Yr. Audit Disagreement

[bbrownatl]

I have a new client who has a rental house. Last year, the client was audited for years 05, 06 and 07. One of the IRS changes was to the depreciation for appliances added to the rental property in 07. They indicate “200% DDB, 7YR”. Now, in doing the 2008 return, I have two issues. First, Pub.527 clearly states 5 Yrs. for appliances. Second, even if I use 7 yrs., I can’t come to the 07 depreciation that the IRS calculated, even under all conventions. Per the 2007 audit, the IRS provides the computation page which shows the future years (08 and 09) as well for the appliance depreciation. My dilemma is that I don’t want to show an 08 depreciation amount that is different that what the IRS calculated. However, I don’t believe they did it correctly. I feel that the appropriate way for 08 is to record the 07 asset using 200% DB 5 YR and show the 07 depreciation per the IRS adjusted 07 return but then the subsequent years compute out based on the 5 yr life.

Thoughts, insight??

As always thanks for your assistance.

Brian

[JohnH]

How much of a difference in actual dollars are you working with? Unless the numbers are highly significant, you might decide the better part of valor is to "go along to get along". After all, as long as the client eventually gets the benefit of the full depreciation, why stress out over it? That wouldn't preclude you from using what you know to be correct with future asset purchases.

[bbrownatl]

John, good insight. Not talking huge dollars here, though just trying to "audit proof" this return as much as possible. I agree with your guidance of "go along to get along" regarding this matter. Thanks again.