You cannot use midquarter unless 40% of the assets were placed in service in the 4th quarter.
Your basis for depreciation of the vehicles that you transfer in will be the LESSER of your actual cost plus any improvements/restoration made prior to the contribution OR the current fair market value of the vehicle. I would guess in your case, you basis will be cost plus improvements.
Just to double check, are there possibly any exceptions to having to use the Mid-year tables that might apply to my situation?
For the second question, to assign a reasonable "basis," my issue is that I have no documentation to support what my cost was when I purchased the vehicles many, many years ago, nor do I have any records to support what the improvement costs were. I had all this but lost all my records in a military move 7+ years ago when I was still on active duty. What I have now are just the antique cars and the NADA guide. And I need a defendable way to come up with a Basis for depreciation that isn't what the cars sold to the original owner was 60+ years ago because the higher the basis the better the outcome, but it has to be a valid and defendable method with some sort of precedent. can you tell me what method has strong precedent that's relevant to my situation?
Steve, for my first question, I may have been asking the question the wrong way. My goal is a valid and defendable way to maximize my depreciation in the first year. Since the cars used in the rental company are used I do not qualify for bonus depreciation. Since my start up expenses far offset my income in year 1 I can not use Sect. 179. So What I'm left with is maximizing standard MACRS.
I've found 3 or 4 similar statements on line but I can't find anything that I would consider an "authority," like a Rev Proc or a Rev Ruling or a Court Case. But if this is comon practice in the rental car industry, it would definitely be helpful in light of the fact that I'm likely stuck using the mid-year method because of when the majority of my assest are placed into service.
"Some types of business will use a different depreciation schedule. For example: a rental car business may shorten the useful life of a car from five years (as estimated by the IRS) to two years because its cars are used much more frequently and get used up much quicker than they would in another type of business."
I would like to at least find a valid and pertinent "authority" that allows for the use of the 3 year mid-year table as opposed to the 5 as is suggested in multiple places is appropriate for a rental car company. Is that something you could provide?
Comment: Make sure that your start up expenses are deductible vs amortizable.
There are no exceptions to the rules for midquarter convention.
I would find it hard to support a 3 year life in your rental situation. Rental fleets get alot of service, in most cases more than the standard 12K - 15K annual mileage. I don't expect that to be your case. Also, you still have the "is it truly depreciable" argument to support.
You will have a few options for supportable basis. 1. Zero, because you have no records. 2. Use the NADA for current value and restate for value on date of purchase (may be on titles) using the consumer price index (link below) Example 1963 XKE purchased in 1985, current blue book value $35K. Basis $17,557 (35,000/214.537 * 107.60. 3. Find old Hemmings (used bookstores, auto meets) to determine value at date of acquisition.
Understood on all counts but the last one I just want to double check I understand. I will use Option 2 as long as this is a valid convention.
Current value per NADA / current rate * annual rate = Valid Basis when nothing else exists? Correct?
NADA / current cpi * cpi for year of acquisition = a reasonable determination of basis. It certainly is not the preferred method, but it is a reasonable method. Anything other than the lower of cost or FMV is still subject to challenge by the IRS.