What are the tax methods for depreciation on videotapes purchased for rental?
NOTE: ALL NAMES ARE FICTITIOUS AND ANY SIMILARITY TO EXISTING ENTITIES OR PERSONS IS ENTIRELY COINCIDENTAL. VIDEOTAPES CAN BE DEPRECIATED: Videocassettes are subject to section 167 of the Code and may be depreciated in accordance with the straight line method over the useful life of the videocassettes in the particular taxpayer’s business. Alternatively, the income forecast method may be used. IT DOES NOT APPEAR THAT VIDEO RENTALS INC IS EXPENSING OR DEDUCTING THE COST OF RENTAL TAPES, UNTIL THE TAPES ARE SOLD. SINCE THIS IS A “RENTAL” BUSINESS THOSE, COSTS CAN BE DEPRECIATED UNDER 168. This subject is restricted to the write-off provision and does not address the amount to use for the write-off, call Bob Parrish for a limited no-charge discussion of the basis topic. FACTS WHICH ARE NOT SHOWN ON THE TYPICAL TAX RETURN: ARE THE TAPES PURCHASED FROM THE SUPPLIER UNDER AN AGREEMENT OF RESALE OR AN AGREEMENT OF RENTAL? DOES VIDEO RENTALS INC. PAY SALES TAXES WHEN THE TAPES ARE PURCHASED? A
