timing of depreciation and paying for stuff

[taxmandan]

I'm getting bogged down in the details of tax season and want to be sure about how to depreciate the assets for a rental: Client bought, on proprietary CC, items for his rental in 2010, but didn't pay the bill until 01/26/2011. So I don't list the items for depreciation until 2011, even though they were put in use in August 2010? I can't consider them paid for at the time of purchase because he used the CC of the store not a VISA/MC. Is that right?

Daniel

[veritas]

Placed in service

is the date you need to look to.

[JG EA]

I'm getting bogged down in the details of tax season and want to be sure about how to depreciate the assets for a rental: Client bought, on proprietary CC, items for his rental in 2010, but didn't pay the bill until 01/26/2011. So I don't list the items for depreciation until 2011, even though they were put in use in August 2010? I can't consider them paid for at the time of purchase because he used the CC of the store not a VISA/MC. Is that right?

Daniel

And also for other things - when a cash basis TP buys with a credit card it is purchased on that date. The exception is when it is bought with just a store card that is not Visa, etc. then the purchase date is when it is paid. For instance, a taxpayer buys auto parts at an auto parts store and pays the store a couple of hundred a month. If at the end of the year, the balance due is all paid and he makes a new purchase - then that new purchase is written off in the next year when it is paid for. If he had paid by CC then it is counted on the date of charge.

This is the rule of thumb for business expenses. For depreciation it says you must be the legal owner so that is why V said placed in service is important.

[taxmom34]

i didn't realize that we now need to ask how did you pay for this item? cash, check , credit card or store card?

[taxmandan]

The exception is when it is bought with just a store card that is not Visa, etc. then the purchase date is when it is paid.

That's what got me confused, it was a store card not a VISA or MC and it wasn't paid until 2011. Items were placed in service in Aug. 2010. So the date 'placed in service' for depreciation looks to be 2011.

[S T]

I don't ask enough times

I think from time to time we have all "oopsed" on this and the appropriate dates, and probably one more item to ask our clients if we are not doing the accounting,

but I believe in store credit card, such as Staples, Home Depot and Lowes, if purchased in 2010, but not paid until 2011, you have to use the 2011 date in service.

Sandy

[solomon]

§1.167(a)-10(b)

The period for depreciation of an asset shall begin when the asset is placed in service and shall end when the asset is retired from service.

[S T]

However

Don't we have to look to payment and use that as placed in service date, hasn't that always been the rule for cash basis?

Sandy

[solomon]

Don't we have to look to payment and use that as placed in service date, hasn't that always been the rule for cash basis?

Sandy

Not really. The Regulation gives no indication of payment - just placed in service as veritas noted.

Suppose I buy and place in service a 100K piece of equipment for my business on the installment plan. Purchased in Sept. 2010 and final payment made in Sept. 2014. Clearly I begin depreciation in Sept. 2010.

Depreciation begins when burdens and benefits of ownership begin - placed in service.

[S T]

So Different Rule

for assets purchased subject to Sect 179 or depreciation,

then expenses such as Staples, Home Depot, Lowes for office supplies and repairs?

Sandy

[solomon]

for assets purchaed subject to Sect 179 or depreciation,

than expenses such as Staples, Home Depot, Lowes for office supplies and repairs?

Sandy

Yes. Depreciable items are different than §162 items.

Regarding §179 - same as §167.

§1.179-4(e)

Placed in service. The term placed in service means the time that property is first placed by the taxpayer in a condition or state of readiness and availability for a specifically assigned function...

[S T]

Just learned

Thanks Solomon and Veritas,
Just learned something new!
Not that I was neglectful in reviewing, but I also did not pay enough attention to biz deductions on a "Store Card" - Assets depreciable vs those expenses
So all has worked out for me okay - as I have taken the deduction when purchased or placed in service, for biz assets
I am probably lacking in my follow up for office purchases and repairs, on the Staples, Lowes, etc and whether those deductions were correct. So another follow up on the biz clients.

I am so happy you are here and posting!

Sandy

[Lion]

Placed in Service

Client could purchase equipment and store it in his garage until he opens his store or enlarges his shop and then finally install new equipment. So, not depreciated until placed in service. Sitting unused doesn't count even if paid cash at an auction.