Which IRS depreciation method applies to a road authorized golf cart used by tenants in a vacation rental activity?
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To determine the correct IRS depreciation method for a road-authorized golf cart used by tenants in a vacation rental activity, we must analyze the asset’s classification, the applicable depreciation system, and the method required or permitted under the Internal Revenue Code and IRS guidance.
1. Asset Classification
A road-authorized golf cart is a motorized vehicle designed for use on public roads. For tax purposes, the classification depends on its use and characteristics:
- Listed Property: The IRS defines "listed property" to include any vehicle used for transportation, such as cars, trucks, and other vehicles, unless it is a qualified nonpersonal use vehicle (e.g., certain heavy trucks, delivery vehicles, etc.).
- Passenger Automobile: A passenger automobile is defined as a four-wheeled vehicle made primarily for use on public streets, roads, and highways, and rated at 6,000 pounds or less of unloaded gross vehicle weight (6,000 pounds or less of gross vehicle weight for trucks and vans).
A road-authorized golf cart, if it meets these criteria, would be considered "listed property" and may be treated as a passenger automobile if it is primarily designed for use on public roads and meets the weight threshold.
2. Use in a Vacation Rental Activity
- The golf cart is used by tenants in a vacation rental activity, which is a business or income-producing activity.
- If the golf cart is available for use by tenants and not for personal use by the owner, it is used 100% for business/income-producing purposes.
3. Applicable Depreciation System
- MACRS (Modified Accelerated Cost Recovery System): Most tangible property placed in service after 1986 must be depreciated under MACRS.
- Property Class: Under MACRS, vehicles such as automobiles and light general purpose trucks are classified as 5-year property.
- Golf Carts: While not specifically listed, a road-authorized golf cart used for tenant transportation in a rental activity is most analogous to a light general purpose vehicle, and IRS guidance and depreciation tables generally treat such vehicles as 5-year property.
4. Depreciation Method
- General Rule: For 5-year property under MACRS, the default method is the 200% declining balance (DB) method, switching to straight line when it yields a greater deduction, using the half-year convention.
- Listed Property Rules: If the golf cart is "listed property," you must use the straight line method over the ADS recovery period if it is not used more than 50% for qualified business use. However, if it is used more than 50% for business (as in this case), you may use the accelerated method.
- Vacation Rental Activity: The use of the golf cart by tenants in a rental activity is considered business use for depreciation purposes.
6. Conclusion
The correct IRS depreciation method for a road-authorized golf cart used by tenants in a vacation rental activity is the 200% declining balance method (switching to straight line when it yields a greater deduction), over a 5-year recovery period, using the half-year convention, under MACRS.
- If the golf cart is used more than 50% for business (which it is, in this scenario), you may use the 200% declining balance method.
- If business use drops to 50% or less in a future year, you must switch to straight line over the ADS recovery period for that year and future years.
Citations:
- IRC §168(b), (c), (d), (e)
- IRS Publication 946, Table B-1, Table 4-1
- IRS Publication 527, Rental Property
- IRS Publication 463, Car Expenses
- IRS Publication 534, Listed Property
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