What the asset type be for a new spetic system ($22,000)

[Terry53029]

pub 946 says that Any municipal wastewater treatment plan is 15 year property, and a septic system does the same thing.

[Camp1040]

If the OP meant municipal wastewater treatment, then yes 15 yrs.

[IRonMaN]

Municipal waste water treatment plants for $22,000?  They really should spread the word, they cost millions in most other cities.  Whatever their trick is to cut costs, there are going to be a lot of taxpayers across the country eager to find out about those tricks :smile:

[Terry53029]

Guess I missed the change where asset class was determined  depending on cost of asset 🙂

[Camp1040]

The point may have been the subject is a private septic system and not a municipal treatment facility.

[Terry53029]

Check out this article from tom Copeland    http://tomcopelandblog.com/ how-to-treat-land-improvements    What do the following items have in common: outdoor fence, patio, driveway, sidewalk/walkway, underground sprinkler system, cement slab, sewer line, septic tank, underground swimming pool, and a well?
They are all considered land improvements that you can deduct as a business expense.
A land improvement is something that is attached to your land, costs more than $2,500, increases the value of the land and has a separate useful life apart from the land.
You must depreciate land improvements over 15 years. If you use the item 100% for your business you can depreciate 100% of the cost. If it’s used for both business and personal purposes, multiply the cost by your Time-Space Percentage before depreciating. If your actual business use percent is much greater than your Time-Space Percentage, you can use the actual business use percent before depreciating it. See my article “How to Calculate an Actual Business Use Percent.”

[Terry53029]

court case  
Tax Ct. Docket No. 38852-87
Doc 1989-1288
Decided: February 14, 1989
Cite(s): T.C. Memo 1989-66
56 T.C.M. 1242
Judge(s): Couvillion, opinion
Principal Code Section Reference(s): Section 168


Summary


Provided by Tax Analysts. Copyright 2006 Tax Analysts. All rights reserved.

CONVERSION OF GARAGE TO DENTIST OFFICE NETS NO ITC; OFFICE FURNISHINGS MUST BE DEPRECIATED OVER FIFTEEN YEARS.

Joe Miller retired from the United States Air Force and set up practice as a dentist in Dripping Springs, Tex. Miller bought a house with a detached garage, which he had renovated and enlarged for his business. He paid nearly $6,000 for a septic tank system that served his home and the office. He also paid $36,800 to have the garage turned into a dental office, complete with furnishings. Miller claimed an investment tax credit (ITC) for the sewage system. He classified the sewage system and the office furnishings and attachments as five-year property for depreciation purposes.

The Service determined a deficiency, asserting that the sewage system was not tangible personal property eligible for the ITC. It also asserted that the system was 15-year property for depreciation purposes and was not depreciable to the extent of its use in serving Miller's residence. The Service charged that the cabinets, benches, shelves, and other attachments in Miller's office should be depreciated over the course of 15 years. Miller petitioned the Tax Court, arguing that the septic tank system constituted tangible personal property since it could be moved. Even if it were not section 38 property, Miller argued, it should be treated as five-year property since the local government may require attachment to a central sewage system within five years. He also argued that the office furnishings deserve five-year depreciation.

Tax Court Special Trial Judge Couvillion has held that the sewage system is not tangible personal property. The court cited Everhart v. Commissioner, 61 T.C. 328 (1973). The court ruled that the septic tank system is permanent and subject to 15-year depreciation. Citing Miller's lack of documentation and the nature of the office components, Judge Couvillion held that Miller is entitled to five-year depreciation of cabinets and benches. The court sustained the Service's determination that the remainder of the office assets should be depreciated over 15 years.

[sjrcpa]

The depreciable lives were different when this case was decided.

[rbynaker]

The case doesn't say what year was being examined but wouldn't it have to be pre-MACRS if they're depreciating cabinets, benches and shelves over 15 years?  If it was in Tax Court in early 1989 I'm guessing a 1985 tax return?  It's slightly before my time but I think MACRS was invented with TRA-86.

The only thing I could find from IRS that mentions "Septic" is Pub 527 which lists it as a "Plumbing Improvement" in the table on page 5.  My inclination would be 27.5/39 year property.  I would have trouble making the argument that a Septic System "increases the value of the land".  IMO it increases the value of the building that's attached to it.

I'm not saying you're wrong, just that I couldn't find any good sources to support this as a land improvement.

Rick

[sjrcpa]

Yes i read it as pre MACRS. MACRS came in with TRA 86.

[itonewbie]

Yes, agree that's pre-MACRS.

[Camp1040]

This may wind up like the hot water heater discussion! Does anyone posting here remember ACRS method. Nothing to do with the discussion, just thought I would ask. That was the good old days of 15 yr dep. for Rental RE

[IRonMaN]

I would say I remember those days, but I don't want to sound like I'm really old.

[Camp1040]

Me either, I just heard some old guy talking about it; It was the same guy who told me " I know a lot, I just can't remember it all"

[IRonMaN]

I think I met that guy.

[IRonMaN · Accepted solution]

I'm not sure about a spetic system, but I would go with 27.5 or 39 years for a septic system depending on whether it was residential or commercial property.

[Terry53029]

Isn't that land improvement, so the ground can clean your waste? Not sure but if it is that would be 15 years

[Camp1040]

I'm thinking land improvement as trees, shrubs, bushes....but septic, I would assign to the plumbing which is an underlying asset of the 27.5 or 39 yr property.

[IRonMaN]

Yeah, somehow I can't quite picture the ability to keep human waste stored in a tank as an "improvement" to your land :smile:

[rbynaker]

Well, I hear the grass is always greener over the septic tank . . .

[Terry53029]

The tank would be part of plumbing, but I thank the leach bed is ground improvement as they prepare the ground to let waste drain into, and that is the costly part. I think I would split it into 15yr for bed and 27.5/39 for tank  

[IRonMaN]

But they have to dig a big hole to put in the plumbing and the tank so I'm not so sure those ground improvements are a separate costly item.

[Camp1040]

Do you want to plant your vegetable garden over a leach bed? It is a stretch for improvement IMO.

[Terry53029]

see my reference to pub 946 above

[itonewbie]

@IRonMaN The tank is bit far out to be stirred, lol.

[IRonMaN]

You just need a really big stick.

[itonewbie]

I'm with Mr. Yote.  It should be depreciated over 27.5 or 39 years.

The septic system is a permanent integral part of building structure, the lack of which will most likely breach building ordinance for being fit for occupation.  As a result, the class life is the same as the building to which it is attached.

See also AmeriSouth XXXII Ltd. et al. v. Commissioner, (T.C. Memo. 2012-67) for a detailed analysis.