Renting Bounce Castles

Today TaxMama hears from Shaunna in Washington State, who tells us. “I own a small rental business. Is the bounce castle I rent out considered an asset or inventory?”

Dear Shaunna,

That’s a good question.

We had a discussion about a similar issue recently – about video rentals.

http://taxmama.wpengine.com/video-rentals/

The concept is very much the same, so read the IRS audit guide described in that TaxQuip.

It’s not inventory, since you are not selling it. You have a depreciable asset here.

The question is, how long is the depreciable life to use.

Under the GDS (General Depreciation System) rules, you would use a 7-year life for anything that doesn’t fit anywhere else. (See link in Resource Center below)

Following the logic in the IRS audit guidelines for video rentals, you would use straight-line depreciation for 7-12 years

You can read more about depreciation in IRS Publication 946 http://www.irs.gov/publications/p946/index.html

No doubt, other tax pros will have some thoughts on this.

And remember, you can find answers to all kinds of questions about business expenses and other tax issues, free. Where? Where else? At TaxMama.com.

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4 thoughts on “Renting Bounce Castles

  1. TaxMama says:

    Mahalo Tracy,

    Actually, my brother is in this business and probably has a half a million dollars of such inventory. I could have called his EA. They are NOT cheap.

    Tracy, what life are you using?
    [Tracy sent a note – she is also using 7 years.]

    Actually, Toni, I thought about suggesting that. But considering who uses these things – and that they are often left out in the weather,… I was thinking Sec 179 might be too aggressive. They might be apt to be worn out before the depreciable life. Then you have a recapture of Sec 179 to deal with.

    Also, if you write them all off at once, you have no deductions to offset future years. You bring yourself down to a very low tax bracket and get little value from the expense. Spreading the cost across several years is apt to give you a deduction worth 25% for Federal, plus state. (Plus SE tax savings), instead of an effective rate of 5% Federal, etc.

    But you’re right. I would definitely explore that with my client.

    Hugs
    Eva

  2. Tracy Bauman says:

    Hi Eva,
    I agree with you that these items are depreciable assets and not inventory. I currently have a client who operates a business that rents out bounce houses, slides, and other types of large castles and water slides etc. Costs for some of these are as high as $10,000 depending on how elaborate they are.

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