Classical Musician - Depreciation

[Hoosier]

Client is a classical musician with a Sch C. Purchased a classical violin in 2010. For depreciation purposes what would be the recovery period (life)? Quality classical instruments do not really depreciate from what I've learned. They can actually increase in value. Not sure how depreciation for tax purposes will apply in this situation. Any ideas or suggestions?

[Koss]

Violin

Most real estate doesn't really depreciate, either. In the current economy, we've certainly seen some significant drops in the value of real estate in some parts of the country. But historically, in general, real estate increases in value. It does not decrease in value. The property that suffered serious drops in value in the last few years is still worth waaaay more than it was, say, 50 or 75 years ago.

I'm not sure I see a compelling reason to treat your client's violin any differently that a "modern" musical instrument. What exactly is a "classical violin"? Do you mean that it is some sort of antique, that was made 75 years ago or something? Does its age give it inherent value?

Or is it a "new" or "used" violin that was made three months ago, or three years ago, but is simply a violin that is extremely high quality, such that even brand new or lightly used, it has a market value of several thousand dollars?

I'm not sure it really makes a difference.

Suppose you buy antique furniture for your tax office, or to furnish a bed and breakfast. I can make the same argument. It is likely to retain its value or increase in value.

Is there some reason that it should be depreciated differently than brand new furniture that is purchased at Staples or K-Mart?

BMK

[Koss]

Further thoughts

One argument for depreciating property that retains or increases in value is that in order for it to retain or increase in value, the owner still has to maintain the property. It still wears out, or experiences normal and wear and tear, that must be remedied, or the property will lose value.

Of course, the owner also gets to deduct the cost of repairs and maintenance. So the argument isn't perfect.

Also: If a violin or antique desk increases in value over time, while I am depreciating it, and then I eventually sell it, the depreciation reduces my basis. So the depreciation comes back in as capital gain...

BMK

[Burke]

Quality classical instruments do not really depreciate from what I've learned. They can actually increase in value. Not sure how depreciation for tax purposes will apply in this situation.

That's why they have tried to stop referring to it as "depreciation" and use "cost recovery."

[Hoosier]

Classical

Thanks Koss and Burke for the replys to my post. I guess my primary question is: What is the cost recovery period for a violin?

[Lion]

Violin

I have a violinist who plays and teaches. We depreciated her violin ($85,000) over 7 years and her new bow ($7,000) over 7 years. But, that began in 1994, so I don't remember where I found the class life. I was at HRB at the time and might've called their Hotline for the answer.

[Koss]

Recovery Period

I can't find any specific reference to musical instruments.

According to IRS Publication 946, 7-year property includes "any property that does not have a class life and has not been designated by law as being in any other class." That would confirm Lion's recollection.

Tell your client he's just in the wrong business. He should have bought a racehorse, or a municipal wastewater treatment plant. Then you wouldn't have so much trouble doing his tax return.

LMAO

BMK

[New York Enrolled Agent]

Client is a classical musician with a Sch C. Purchased a classical violin in 2010. For depreciation purposes what would be the recovery period (life)? Quality classical instruments do not really depreciate from what I've learned. They can actually increase in value. Not sure how depreciation for tax purposes will apply in this situation. Any ideas or suggestions?

You might want to research two Court of Appeals cases where the taxpayer won over the IRS challenge to the notion you presented, namely the instruments appreciated in value. If you can't find them I can get you the cites. Simon (CA2) and Liddle (CA3) are the cases.

Understand the IRS has not acquiesced and in an AOD the IRS has stated they will pursue these cases in circuits other than the 2nd and 3rd. I don't believe there has been any change to their position but I can't say that with 100% assurance.

[Kram BergGold]

I do MACRS 7 years

Based on the court cases I depreciate musical instruments over 7 years.
One of the points to MACRS was useful life was no longer relevant.
So a musical instrument is like any other equipment to me.