Q: We are redecorating two of our offices in Boise and have purchased quite a bit of new furniture and artwork. I know we can expense or depreciate the furniture, but can we also either expense or depreciate the artwork?
A: This is a great question and one that I can honestly answer with the tax accountant’s favorite answer: “Maybe – it depends.”
In order to be depreciable or subject to the special first-year depreciation expensing election in the Tax Code, an asset must have a determinable useful life. While we may argue about the exact useful life of a desk or chair or other piece of furniture, there are well established rules that give us guidelines as to when we can depreciate these common assets and over what period of time. Artwork, however, poses special problems.
Back in the late 1960s, the IRS issued a ruling on this topic that stated “valuable and treasured” art pieces do not have a determinable useful life and therefore cannot be depreciated. But the ruling stopped short of offering guidance on what is a “valuable and treasured” art piece. It is hard to argue that a painting by Van Gogh would not be considered valuable and treasured. But what about a painting of an Idaho landscape by a local artist? Or what about a pre-framed print from the office furniture store?
As a young staff accountant (with another firm) I was given a list of artwork purchased by a business client and asked to set up a depreciation schedule for the art. In discussion with the company’s accountant, we decided to depreciate all but one work of art. Most of the art was furniture store-bought mass produced prints, but there was one painting by a local artist that depicted the history of the company and cost in excess of $20,000. In the owner’s view, this work was valuable and treasured, so we did not depreciate it.
Upon seeing the painting, I heard the partner on this account mutter, “We should have taken depreciation.” So, I truly believe that depreciation may be in the eye of the beholder and that you will need to use your best judgment in deciding whether to depreciate your art or not.
To ensure compliance imposed by IRS Circular 230, any U.S. federal tax advice contained in this article is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed by governmental tax authorities. The answers in this column are meant to offer general information. You should consult your tax adviser regarding the specifics of your situation.
Peter Robbins is a partner in the Boise office of CliftonLarsonAllen, LLP specializing in tax matters for small businesses, individuals, and trusts and estates.
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