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vioalas
New Member

I purchased an instrument in 2013 for $16,000 that I currently for work. Is this an expense I can deduct? Where should I start?

 
11 Replies
Opus 17
Level 15

I purchased an instrument in 2013 for $16,000 that I currently for work. Is this an expense I can deduct? Where should I start?

Are you a W-2 employee, or treated as an independent contractor, or both?
*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
vioalas
New Member

I purchased an instrument in 2013 for $16,000 that I currently for work. Is this an expense I can deduct? Where should I start?

Both, I believe. W-2 because I teach orchestra in a public school. And I believe I'm an independent contractor because I receive several 1099s from the orchestras I play in.
Opus 17
Level 15

I purchased an instrument in 2013 for $16,000 that I currently for work. Is this an expense I can deduct? Where should I start?

You have to start with your 2013 tax return. Unfortunately, it is too late to amend your 2013 tax return to get a tax benefit, since it is more than 3 years from the filing deadline.  But, you can still get some benefit.

Equipment used in your business is an "asset" (tools for a mechanic, printing presses for a newspaper, instruments for a musician).  Assets must be depreciated over their "useful life."  Normally, this means taking the wear and tear into account, most assets lose value over time.  Machinery wears out, computers become outdated, etc.

The class life for musical instruments is defined as 7 years.  That means, roughly speaking you can depreciate, or deduct 1/7 of the value every year over 7 years as a business expense.

There are certain procedures that allow you to take more depreciation -- that is, depreciate the item 50% or even 100% in the first year.  If you stop using the item for business before the end of the class life, you have to pay back the excess depreciation.  (For example, computers have a class life of 5 years.  If you are a graphic artist and buy a new computer and depreciate it all at once, then change careers after 2 years, you have to repay 3 years worth of depreciation.)  However, these procedures only apply in the first year, you would have to take them on your 2013 return, and it is too late to amend your 2013 return for a refund.

What you can do now, is file an amended 2013 return to list your instrument as an asset and take regular depreciation over 7 years.  Then file amended returns for 2014, 2015 and 2016 to claim those years' worth of depreciation.  That carries over to your 2017 return, and for 2 more years after that until the instrument is fully depreciated.  The 2013, 2014, 2015 and 2016 amended returns will all show some additional refund due to the added business expenses, but only the 2014, 2015 and 2016 refunds will actually be paid because 2013 is past the allowable date.  You would probably also get small refunds from your home state as well if you amend your state returns.

Why you might not want to do this.  When you depreciate an item, you reduce it's "cost basis", which you can view as the amount you have invested in the item.  If you ever sell it for more than the current cost basis, you have to recapture the depreciation and pay capital gains tax.

For example, if you sell the instrument now for $20,000, you would owe capital gain tax on a $4,000 gain or profit, the difference between the selling price and your cost.  But if you take the depreciation deduction and reduce your basis, then you would owe tax on the difference between the selling price and the adjusted basis.  If you depreciate the instrument down to zero over 7 years and then sell for $20,000, you would owe 25% depreciation "recapture" on the first $16,000 of the sales price and then 15% capital gains tax on the last $4,000.  Also, if you have an insurance loss, you owe income tax if the insurance payment is more than your adjusted cost basis.  Again, if you depreciate the instrument and then, for example, an airline destroys it and you receive $16,000 from insurance, that is taxable income because it is more than your basis.

This is rarely a problem with assets like computers or industrial machinery because they rarely gain value over time and almost always lose value.  But musical instruments are often different.  They can hold their value or even increase in value depending on the type on instrument, maker, and so on.

If you expect this instrument to hold or gain in value, you might be better off not taking the depreciation.  (Of course, there is a whole other discussion about present value of money vs future value of money that we could get in to.)

It's up to you, but if you bought the instrument in 2013 you have to go all the way back to 2013 to start the depreciation calculation.

Separately of course, any repairs or maintenance that you paid in 2017 would be a deductible business expense on your 2017 return, without regard for deprecation, and deducting repairs or maintenance doesn't change your cost basis.

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
Opus 17
Level 15

I purchased an instrument in 2013 for $16,000 that I currently for work. Is this an expense I can deduct? Where should I start?

One other thing.  You start the depreciation clock when you place the instrument "in service" in business.  If you bought the instrument as a student in 2013, and became a professional musician in 2015, then you would start depreciating the instrument by listing is as an asset on your 2015 tax return.  The basis for depreciation at that time would be whichever is lower -- your original cost, or the fair market value at that time.  You would still need to file at least one amended return, depending on when you placed the instrument in service for business, and you still have to consider the issues around recapture whether it will hold its value.
*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
hntrust
Level 3

I purchased an instrument in 2013 for $16,000 that I currently for work. Is this an expense I can deduct? Where should I start?

I saw that you answered some questions in the past about depreciating a musical instrument.  I hope you can assist me.

A piano was purchased in 2011 while a student. In 2014 I began performing as a self employed concert pianist. I use the piano to practice and give lessons exclusively in my home office. So in 2014 I started using the piano to produce income. Depreciation was never taken in prior years. Can it be depreciated starting for 2019 and how do I do that in TurboTax Home and Business? Do I have to file amended returns or can I just not take the depreciation for years prior to 2019 and just start taking depreciation beginning with the 2019 return? I entered the information setting up the piano as a business asset in Home and Business. Where it asks what year I acquired the asset and the price I put 2011 and $32,000. Where it asks what year it was placed in service I put 2014. Then it calculated a depreciation deduction for 2019 as $12,800 which was transferred onto Schedule C.  I thought the program would generate form 4562 but it did not. Is that correct? Any guidance would be appreciated. Thank you

ThomasM125
Employee Tax Expert

I purchased an instrument in 2013 for $16,000 that I currently for work. Is this an expense I can deduct? Where should I start?

It sounds like you did everything correctly. You won't have a form 4562 in 2019 because that only appears in the year you first start using the asset. You can go back three years to amend returns to report the depreciation in those years if you want.

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JackieC7
Level 1

I purchased an instrument in 2013 for $16,000 that I currently for work. Is this an expense I can deduct? Where should I start?

I have a question about the taxes for my daughter who is a musician. She has had a business for a couple of year while in high school but will be going away to college for 4 years and won't be doing much gigging during those years.  Once someone has started writing off the cost of her instrument, can they skip the years of education?

Thank you!

Jackie

 

Hal_Al
Level 15

I purchased an instrument in 2013 for $16,000 that I currently for work. Is this an expense I can deduct? Where should I start?

Q. I purchased an instrument in 2013 for $16,000 that I currently use for work. Is this an expense I can deduct? 

A. Simple answer: No.

 

2017 was the last year W-2 employees could deduct job expenses.  The self employed can still deduct job expenses.  For existing  personal property converted to business use, you may only deduct depreciation.  So, you may deprecate $16,000 or the value of the instrument, on the date of conversion, whichever is less.  Then you must prorate the depreciation for business use.  For example, instrument is worth $7000, 50% of your use is for self employed gigs. Your deprecation deduction, for 2020,  is  $7000 / 7years x 50% = $500.  

Opus 17
Level 15

I purchased an instrument in 2013 for $16,000 that I currently for work. Is this an expense I can deduct? Where should I start?


@Hal_Al wrote:

Q. I purchased an instrument in 2013 for $16,000 that I currently use for work. Is this an expense I can deduct? 

A. Simple answer: No.

 

2017 was the last year W-2 employees could deduct job expenses.  The self employed can still deduct job expenses.  For existing  personal property converted to business use, you may only deduct depreciation.  So, you may deprecate $16,000 or the value of the instrument, on the date of conversion, whichever is less.  Then you must prorate the depreciation for business use.  For example, instrument is worth $7000, 50% of your use is for self employed gigs. Your deprecation deduction, for 2020,  is  $7000 / 7years x 50% = $500.  


The OP who bought the instrument in 2013 posted their question in 2017 and it was already answered. (The 2019 date is faulty.)

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
Opus 17
Level 15

I purchased an instrument in 2013 for $16,000 that I currently for work. Is this an expense I can deduct? Where should I start?


@JackieC7 wrote:

I have a question about the taxes for my daughter who is a musician. She has had a business for a couple of year while in high school but will be going away to college for 4 years and won't be doing much gigging during those years.  Once someone has started writing off the cost of her instrument, can they skip the years of education?

Thank you!

Jackie

 


If she stops her business, she can take the instrument "out of service" as a business asset and return it to purely personal use.  Then, if she resumes business activities, she can place the instrument back "in service" as a business asset.  However, when returning the instrument to service as a business asset, the depreciation clock starts over from the beginning (probably 7 years?) instead of where she left off.  The value of the asset when placed in service again is either the present fair market value, or the previous depreciated value, whichever is lower.

 

For example, let's imagine a $5000 electric piano.  If it was in service as a business asset for gigging for 2 years, she might have taken $1400 of depreciation, so the present adjusted cost basis is $3600.  When she returns to gigging, I will assume the fair market value of a 6 year old used electric piano is $1500.  That means if she returns it to service as a business asset, the value for depreciation is $1500, and it will be depreciated over a new 7 year clock instead of the remaining 5 years from the old clock.  The "missing" $2100 of depreciation is not recoverable.  

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
JackieC7
Level 1

I purchased an instrument in 2013 for $16,000 that I currently for work. Is this an expense I can deduct? Where should I start?

Thank you so much, Opus 17!

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