Discussion:Depreciation on a Parking Space

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Discussion Forum Index --> Tax Questions --> Depreciation on a Parking Space


ConservativeDC (talk|edits) said:

6 January 2006
Here's an interesting conundrum for the group:

I bought a co-op which I use as my primary residence. I have separate title to a parking space (so I own two pieces of property).

One mortgage covers the entire purchase, including the parking space.

The parking space has a FMV equal to 10% of the purchase price of the entire transaction (so it comes out to $20,000).

The parking space has its own set of fees separate from the general co-op fees.

I rent out this parking space. Against the rent, I claim the following expenses:

1. 10% of the mortgage interest 2. 10% of the real estate taxes 3. All of the parking space fees 4. Depreciation on the $20,000 basis

There is the rub: under what class life do I assign the parking space? As I see it, there are four possibilities (under GDS):

1. 39 year. The parking space is being used for a business purpose. It is not personal, so it is real property, and the space is not residential real estate.

2. 27.5 year. The same as above, but people are using the spot in connection with residential real estate, so I can claim this shorter life.

3. 15 years. This is the class life if an improvement was made on property to create the spot.

4. 7 years. This is the class life when nothing else seems to fit.

As far as method and convention, right now I am planning on using 200% DB/HY over 7 years on the $20,000 basis. This is the most favorable method to me. When in doubt, I'm usually aggressive tax-wise.

Thoughts?

Platinumcpa (talk|edits) said:

6 January 2006
I do believe 7 years is over aggressive. Our firm has always used 15 years. Under IRS guidelines, it says the following: Land improvements not spcifically included in any other asset class and otherwise depreciable are 15-yr property (Rev. Proc 87-56 Asset class 00.3). Examples of land improvements include sidewalks, driveways, curbs, roads, parking lots, canals, etc. So, there it is - 15 years.

ConservativeDC (talk|edits) said:

6 January 2006
Here's the problem:

It isn't an improvement. It's an original purchase. I didn't improve an asset and create the spot. I bought the spot itself.

PGattoCPA (talk|edits) said:

6 January 2006
Well, as with most tax questions, the answer is "It depends." However, in your case I think Platinumcpa is correct with a caveat at the end of this response.

First, it does not matter whether you "created" the land improvement or purchased the land improvement - it is still a land improvement.

Second, here are some cites:

1) A motorsports racetrack complex has a 7-year life and the related land improvements also have a 7-year life. (Committee Reports for CONF 108-755, P.L.108-357)

2) Amusement parks and their related parking lots have a 7-year life (asset class 80.0)

3) The parking lot adjacent to a utility's headquarters had a 15-year life, but the parking lot next to it's steam production plant had a 20-year life (the same as the steam production plant). (Rev. Rul. 2003-81, 2003-2 CB 126)

Third, you should see a trend emerging in 1) and 2) above - when the parking lot is related to a income-producing property, the parking lot will probably have the same depreciable life as the income producing property.

However, that is not your situation. You have a parking space that is *ostensibly* (caveat coming below) a land improvement and subject to a 15-year life.

'***CAVEAT***

You state that you have a parking space in a co-op. To me, this means a space in a parking structure. Once the parking spaces are inside, they are no longer an improvement of the land, they are part of the structure. If that is the case, you could very well be stuck with the residential real estate 27.5-year life. If the space is outside with other land improvements (lawn, trees, other common grounds), then you probably can use the 15-year life.


To summarize, I believe:

1) 7-year life is just plain wrong;

2) 15-year life may be correct if an outside parking space;

3) 27.5 year life may be correct if an inside parking space.

James1 (talk|edits) said:

20 March 2006
Just off the top of my head I would agree that a parking space (that is not within a building) is a land improvement, similar to a parking lot (Asset Class 00.3 of Rev. Proc. 87-56). 15-year depreciation period, a section 1250 land improvement. And no, it doesn't matter whether the space was purchased or built by the taxpayer. Its still 15-year property.

The issue of a space located in an attached parking building is facinating. I might be inclined to go with a 39-year recovery period (nonresidential real property). A parking space is being rented. No one is living on it and the lessee did not rent a living unit from the taxpayer. Note that residential RENTAL property is depreciated under MACRS as 27.5 year property, there is no residential REAL property category. The dwelling units are not rented, they are owned.

Dennis (talk|edits) said:

21 March 2006
Personally, I think I would have a hard time defending a $20,000 basis for a couple of inches of blacktop. There is a piece of non-depreciable land beneath it.

Warren (talk|edits) said:

21 March 2006
I agree with Dennis, most of the $20,000 is non-depreciable land.

James1 (talk|edits) said:

22 March 2006
Good point - the cost of land and a building must be segregated into depreciable and nondepreciable. No reason why that rule wouldn't apply to a parking lot or parking space.

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