- 8 -
On their income tax returns ending in 1987 and 1988, the
Entities continued to depreciate all rental units placed in
service during prior tax years, using the accelerated cost
recovery system (ACRS). The recovery period used by the Entities
to calculate the depreciation under ACRS was 5 years.
For Federal income tax purposes, the Entities calculated
depreciation on their rental units placed in service for tax
years ending after 1986 using the income forecast method.6 On
rental units initially acquired by an Entity through purchase
from third parties and rented for the first time and for rental
units rented by an entity on a subsequent rental contract, each
year's depreciation deduction was equal to the cost of the rental
units multiplied by a fraction. The numerator of the fraction
was the current year's income from that rental unit. The
denominator of the fraction was 300 percent of the rental unit's
initial cost, which was the amount of total gross rental that
would be received if the initial rental contract on such rental
went to term.
Guaranteed attached Statement 2 to its tax return for the
taxable year ending December 31, 1987. The only information
Statement 2 provided was that the type of property being
depreciated was "RENTAL UNITS". The statement did not say that
Guaranteed made an election of the income forecast method or of
6Under the income forecast method used by the Entities, a
rental unit's depreciation deduction was based on the rent
received on that rental unit. Consequently, a depreciation
deduction was not taken on a rental unit during any month in
which it did not earn rental income.
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011