Bonus depreciation new/used asset

[99mtamchamp]

I have a client who owns a cabin on a lake.    The property also includes a boat house that they converted to a bunk house that sleep 10 people.  That specific structure is intended to be a rental with use of the property's dock etc.  The issue is the property is not sitting on a foundation and is not a permanent structure.  Would this property be eligible for bonus depreciation?  I know the law says now you can use bonus depreciation for used property...just a lot of different issues going on here.  Any input would be greatly appreciated.  

[Just-Lisa-Now-]

If its not on a foundation and not a permanent structure, but its referred to as a bunk house, what is it?

[IRonMaN]

In Minnesota boat houses are permanent structures.  Unless they are housing them in a tent, I'm not sure why you aren't considering it a permanent structure.

[Just-Lisa-Now-]

If its got wheels under it, I guess that would count as not permanent.  

[IRonMaN]

Maybe they do things differently in CA but I've never seen a boat house with wheels in MN.

[Just-Lisa-Now-]

Im a city girl, Im not really sure what a boat house is...is it just a shell of a house (no floor) sitting on bare land that the boat used to be able to be wheeled into and stored?

[IRonMaN]

A boat house is a permanent structure (walls, roof, that kind of stuff) that you park your boat or boats in to protect them from the weather.  Evidently the boats got old enough to head out to college and now its parents have a spare bedroom to rent out.

[itonewbie]

First of all, the law doesn't simply say "you can use bonus depreciation for used property".  There are strings attached - the property must not have been used by the taxpayer at any time prior to acquisition from unrelated parties and other conditions outlined under §168(k)(2)(E)(ii) must be met.

I suppose you are looking to the regs of §263A for the definition of real property for purposes of determining the class life and, thereby, whether the houseboat is a qualified property for bonus depreciation.

Before I even venture to decide whether the houseboat is part of a real estate by virtual of being an IPS, I'd first look at whether the rental activity constitutes residential rental.  If I read between the lines, it probably doesn't meet the statutory definition under §168(e)(2)(A).

I'd then consider whether it's a nonresidential real property.  And here's where §263A could become relevant.  Based on the plain reading of §1.263A-8(c)(3), the houseboat will need to be "ordinarily remain affixed for an indefinite period of time" in order to be considered an IPS and part of a real property.  We don't have enough info from your question to say either way.

I may even draw on the preamble for the regulations of §865 to get a glimpse at the IRS' perspective on boats as IPS.  It is quite clear that the IRS is aware of the many possibilities but generally does not view structures that are not affixed as IPS.

Once you get all these out of the way, you should be able to determine what the class life is and whether bonus depreciation may be claimed.

[IRonMaN]

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@itonewbie wrote:

First of all, the law doesn't simply say "you can use bonus depreciation for used property".  There are strings attached - the property must have not used by the taxpayer at any time prior to acquisition from unrelated parties and other conditions outlined under §168(k)(2)(E)(ii) must be met.

I suppose you are looking to the regs of §263A for the definition of real property for purposes of determining the class life and, thereby, whether the houseboat is a qualified property for bonus depreciation.

Before I even venture to decide whether the houseboat is part of a real estate by virtual of being an IPS, I'd first look at whether the rental activity constitutes residential rental.  If I read between the lines, it probably doesn't meet the statutory definition under §168(e)(2)(A).

I'd then consider whether it's a nonresidential real property.  And here's where §263A could become relevant.  Based on the plain reading of §1.263A-8(c)(3), the houseboat will need to be "ordinarily remain affixed for an indefinite period of time" in order to be considered an IPS and part of a real property.  We don't have enough info from your question to say either way.

I may even draw on the preamble for the regulations of §865 to get a glimpse at the IRS' perspective on boats as IPS.  It is quite clear that the IRS is aware of the many possibilities but generally does not view structures that are not affixed as IPS.

Once you get all these out of the way, you should be able to determine what the class life is and whether bonus depreciation may be claimed.

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But are we dealing with a houseboat or a boathouse? 

[itonewbie]

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@IRonMaN wrote:

But are we dealing with a houseboat or a boathouse? 

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That's the million dollar question, like are you working hard or hardly working?