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the rental units; and (5) transfers between one Entity and the
other Entity. The vast majority of rental units ceased to be in
an Entity's inventory due to customers' retaining the rental
units for the full term of the rental contract (be it the initial
rental contract or the subsequent rental contract). If a
customer retained the rental unit for the full term of the rental
contract, title to the rental unit vested in the customer at no
additional cost, provided the customer had paid all periodic
rental payments. When any of the units ceased to be in an
Entity's depreciable rental inventory, the remaining basis was
either "charged off" or used to determine gain or loss from the
disposition.
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
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.
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Last modified: May 25, 2011