William Hunt  

Depreciation of Musical Instruments

William Hunt
April 10, 2019

Editor's Abstract (Click to Hide)

In his second article, Bill Hunt, addresses one of the most commonly-asked tax question for musicians: "How do I depreciate my instrument?" Bill explains the Modified Accelerated Cost Recovery System, which is divided into two basic systems: the General Depreciation System (GDS) and the Alternative Depreciation System (ADS). Read on for a concise explanation of a most timely topic.

Send us your performing artist-related tax question, so Bill can address it in a future column.

- Ann Drinan

Introduction

The Internal Revenue Service (IRS) allows a deduction for property used in a business or income-producing activity. For property with a useful life of less than one year, the deduction is generally taken in the year the property is placed in service. The deduction for property that has a useful life of more than one year must be pro-rated over the life of the property. This method of deducting the cost of property is called depreciation and is the method used for most musical instruments. The rules for depreciating the costs of various types of property are rather complex; this discussion will focus only on the depreciation of musical instruments.

For many musical instruments, the ability to claim a depreciation deduction is not in question. Virtually any new instrument used in a business will be deductible. For old string instruments, however, this has not always been the case. In the past, the IRS has taken the position that old string instruments are antiques that appreciate in value and therefore are not depreciable. There have been several court cases involving this issue.

The most recent rulings have maintained that antique instruments used in a trade or business are subject to the same wear and tear as any other property used in a trade or business, and therefore are deductible. Based on these court cases it appears, at least for the present, that all musical instruments, including old string instruments, are deductible as long as they are actually used in a trade or business (i.e., having the instrument in a display case or hanging on a wall would not satisfy this requirement). However, the IRS disagrees with these decisions and may still disallow the deduction outside of the judicial circuits where the cases were decided.

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Comments (Click to Hide)

I'm curious: Assts Used in Distributive Trades and Service Activiities (Rev Proc 87-56) shows that Assets unique to wholezsale and retain trade, and personal and professional services get MACRS/post-1998 AMT treatment of 5 years. I have one obsservation: Performing Arts can come under Personal Service Professions and are considered as such for the AMT on equipment of 5 years. Is it likely that AMT would be given a shorter depreciation than the 7 years being advocated in the article? I have a case where depreciation was taken over 10; sometimes 15 sometimes 30 years (by a previous accountant); and I filed a 481(a) adjustment on the schedule Cs and the client is under audit. I am preparing for the audit now. I filed a 3115 both with the returns and mailed to DC. Any thoughts on what I'm trying to do would be helpful. Although I could switch to double declining balance and come out just ahead.
thank you,
Lorry
Lorrytax on May 17, 2019 at 7:01 PM

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