I rent out my construction equipment on part-time basis. I purchased 1 piece 2 years ago but didn't rent out until year later. What do I put as placed in service date?

[markdosborne]

I didn't put it in service right away because I wasn't sure I wanted to rent it out.  Putting it in service later actually seems to help me get a larger deduction because the % use is higher and maintenance costs are higher for that period.  The IRS definition seems arbitrary to me.

[Vanessa A]

The placed in service date is the date is was ready for use whether or not you actually started using it.  So, if you purchased it in 2021 and it could have been used but you chose not to for whatever reason, so you did not start using it until 2023, the placed in service date would be 2021.

If you did not report the equipment on your 2021 return, you would need to go back and amend your 2021 and 2022 returns, taking depreciation in those years.

"Generally property is considered placed in service when it is ready and available for a
specific use, regardless of whether or not it is actually used at the time. For example, a
house purchased for use as rental property is placed in service when it is ready and
available to rent, even if it is not actually rented at that time."  Depreciation Reminders

Amend Your Return

[markdosborne]

If I do what you say and go back to the year I first purchased the machine and put in zero % use Turbotax won't let me do that so in reality the depreciation is zero because the depreciation value is based on % use for the business vs personal use (basically 1/5 of cost of machine * % use) from what I can tell. 

I am not an expert at this but it seems like if I don't want to depreciate the piece of equipment I don't have to, even for this year, and I can't depreciate it for years it wasn't used for rentals (business use).  If I had a piece of construction equipment for 10 years but didn't rent it out until the 10th year would I go back and re-file 10 years worth of taxes?  Doesn't seem right.

The word "available" in the IRS definition seems so arbitrary.  The equipment was so new when I purchased it I wasn't sure I wanted to include it in my rental fleet therefore I did not make it available for rent.  Then in late August of 2023 I decided I would make it available for rent.  So the percent use is number of hours rented divided by the hours from the date it was rented until the end of the year.  This is my understanding from the way the questions are worded in Turbotax Deluxe which I am using.  Maybe I need to get home and business.

[DianeW777 · Accepted solution]

It may be unclear as to whether you used this equipment for personal purposes before you decided to make it available for rent to others to produce income for yourself.

1. If you used it for personal purposes first, then decided to rent it out, then you would use the date placed in service for rental. 
2. The cost basis for depreciation, if used for personal purposes first, would be the lower of cost or fair market value (FMV) on the date you began to use if as a rental of personal property (as opposed to real property).

No you would not go back 10 years in your scenario to take depreciation on the asset.  

And you do have the right formula for determining business use percentage.  The total time used for business divided by the combined total time used for both business and personal purposes. This percentage would be used times the cost basis you are allowed to use (see #2 above) to arrive at the business cost for depreciation.

Based on your other information it seems you know how to report this, although I want to be sure we are on the same page.  Equipment rental must be reported on Schedule C, self employment income unless this would be a hobby.

@markdosborne 

[markdosborne]

Diane, 

Thanks.

Just to be clear.  For percent use, the percent use is calculated taking the total rental time divided by the total combined rental time plus total personal time, after it is put in use, correct?

Also, to determine the maintenance cost I can apply as a deduction is it the total maintenance cost after it is put in use for business?

Yes, I am filing a schedule C.

Thanks, 

Mark

[DianeW777]

Yes, you are correct on using time to calculate the business percentage. 

The maintenance cost would have the same business use percentage calculation assuming you would still have some personal use after it is put service for business use.  

@markdosborne