wrong class life for depreciation

[Unregistered]

new client came in yesterday. Previous two years returns took depreciation on lawn mowers and attachments as 5 year property. wouldn't these be 7 year property (agricultural equipment)? is an ammended required to fix this so we can take the correct depreciation going forward?

JoshInNC

[Bill Tubbs]

7 yr

4 options:

1) Form 3115 to correct depreciation from an improper to proper method -- but this is most likely overkill in this situation
2) amend the prior year returns to correct the depreciation -- technically a correct option, and less effort than Form 3115
3) try to correct it going forward... how would you accomplish this? Calculate the total depreciation that should have been taken in first three years using 7-yr (14.29 + 24.49 + 17.49 = 56.25%), then subtract the amount that was taken the first 2 years (20 + 32 = 52%)? So your current year depreciation would be 4.25% (56.25 - 52). While this would correct the depreciation, it is not a proper method of correcting -- see options 1 & 2.
4) just leave the depreciation schedule be -- the amounts probably aren't significant to really worry about

I would opt for # 4.

Bill

[Unregistered]

my thoughts also

why rock the boat now? just worried about preparer penalties for filing an incorrect return, since I do have knowledge of the problem.

anyones else's thoughts?

JoshInNC

[Brian EA]

Depreciation

Let sleeping dogs lie.For land mowers and attachments the amt most likely would be insignificant.

[equinecpa]

I have the same situation here - except the amounts add up to a fair sum of money: Land improvements of over $30,000 have been depreciated over 5 years. Yikes! We're in year 2 and 3 now.

I believe for my situation, I'll opt for amended returns.

Carolyn

[veritas]

Why are you using ag clss life? Are mowers used on a farm?

[JoshinNC]

no, they[re used for landscaping

why, what class life is landscaping equipment? I figured it was ag equip. (7 yr property).

if you know differently please advise.

thanks

[Black Bart]

Seems more

like a Schedule C operation to me. I agree that you'd think anything to do with the earth, etc. would be sort of farm-like, but a landscaper isn't really raising and tending to those plants on a regular basis like a farmer is. He just plants 'em and that's usually the end of it for him. But even if the lawn's owner pays him to continually take care of them, he's just rendering a service for somebody else. It might be different if he was growing sod like Bermuda grass to be sold in lawn squares to building contractors--IRS might call that an F.

It wouldn't make much difference ordinarily, since it's seven-year stuff whether C or F, but, as I recall, the farm depreciation is limited to 150% declining balance depreciation and the C operations are allowed 200%. I don't guess it would matter if they started out originally with SL-GDS.

I'm with the others--if the amounts are small I'd just do my duty and tell the T/P that the first two years were done wrong. After that, if he wants to pay me to amend, okay, and if he doesn't...well, he's been told. I'd get him to sign something saying that. If he only wants '05, then recalc '03 and '04 to get the correct prior and do '05 as it would have been done if the originals were right.

[jainen]

Depreciation method

>>worried about preparer penalties<<

Depreciation method is selected in the first year. The taxpayer CAN'T change an accounting method without IRS permission even if it is wrong. Yes, I know there are some automatic approvals, but what rule requires the taxpayer to change? And even if the taxpayer is required to correct it, according to Circular 230 the preparer's responsibility for prior years ends when you have notified the client of the situation. If the client decides to continue without change, the preparer has no choice but to maintain the same depreciation schedule.

[Black Bart]

Dear Enlightened One,

Be reasonable! Get IRS approval for a change in accounting methods? Do you know how long that would take (yeah, you probably do)? This doesn't amount to a hill of beans and you're ready to take it to the Supreme Court. The client's not going to "decide to continue without change;" he's going to sign whatever you prepare and put in front of him. Odds are an agent checking it would say he's using the wrong method and adjust it.

If you let stuff like this (which occurs all the time) tie up your practice, how do you ever get anything done?

[Black Bart]

Sidebar

P. S. What do you think? C? Or F?

[JoshinNC]

I never said it was an F

I know it's a C, just wanted guidance on the depreciation. I'll recalculate as 7 year and have already advised the client of the mistake.

thanks to all for your help!

[veritas]

Why are the mowers not 5 year property?

[JoshinNC]

how would they qualify as 5 year property?

they're not vehicles. what qualifies them as 5 year property (I don't have my chart in front of me)?

[Black Bart]

Josh

I know it's a C, just wanted guidance on the depreciation. I'll recalculate as 7 year and have already advised the client of the mistake.

thanks to all for your help!

I meant that "sidebar" question for jainen (he's prone to pontificate, but he knows lots of stuff, too).

Veritas: It's my understanding that all general tools and appliances used in a business are seven-year property (except calculators, copiers, etc.)