Category: Deductions & Credits Copyright 1998, The Tax Resource Group. All rights reserved. Telephone 800-578-3498. Internet: www.taxresourcegroup.com I refer to your letters of September 25, 1996 and October 1, 1996 and my memorandum of September 30, 1996. Under the Modified Accelerated Cost Recovery System, MACRS, the various depreciation property classifications (e.g., three-year property, five-year property, etc.) are defined in IRC Section 168(e) by reference to the class life of the asset in question. Class lives for a variety of asset groups are set forth in Rev. Proc. 87-56, 1987-2 CB 674. Asset Class 00.4, electrical generation equipment with a rated total capacity in excess of 500 kilowatts, is assigned a class life of 20 years. This translates per IRC Section 168(e) into a 15-year recovery period for regular tax depreciation purposes. Asset Class 00.4 applies only to such equipment used to generate electricity not ordinarily made available for sale to others. The description of Asset Class 00.4 also provides that lower-capacity electrical generation equipment (500 kilowatts or less) should be treated as if it were part of the manufacturing equipment in which the generated electricity is being used. As I understand it, the taxpayer's equipment is rated at 500 kilowatts. In essence, Asset Class 00.4 tells us to treat that equipment just as if it were another machine the taxpayer uses to manufacture his product. I assume you have well considered the proper categorization of the existing manufacturing assets. I see no classification within Rev. Proc. 87-56 that fits the type of manufacturing you describe. Accordingly, I assume the appropriate regular tax depreciation period for such equipment is 7 years. |
