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Depreciation period depends on asset’s classification
A recent ruling by the IRS Chief Counsel serves to remind businesses about the factors that figure into determining the length of a depreciation period.
The specific case involved a floating riverboat casino securely moored to the land. The IRS concluded that it is a commercial building that must be depreciated over 39 years, not a vessel, barge, tug or similar watercraft depreciable over 10 years (CCA 201225012).
Businesses should keep in mind that the IRS will apply six factors to determine whether an asset is a building or other inherently permanent structure, rather than tangible personal property. Tangible personal property is generally eligible for a shorter depreciation period.
The six factors are:
Is the property capable of being moved, and has it in fact been moved?
Is the property designed or constructed to remain permanently in place?
Are there circumstances that tend to show the expected or intended length of affixation or that show the property may, or will, have to be moved?
How substantial would the job of property removal be, and how time-consuming would it be?
How much damage will the property sustain upon its removal?
What is the manner of affixation of the property to the land?
The technical information here is necessarily brief. No final conclusion on these topics should be drawn without further review and consultation. Please be advised that, based on current IRS rules and standards, the information contained herein is not intended to be used, nor can it be used, for the avoidance of any tax penalty assessed by the IRS.
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