Depreciation of boat slip condominium rental

[Room Seven]

I have posted this question to the Bogleheads financial forum (which usually gets excellent responses), but since it is specific to boaters I thought someone here might have the answer, based on your experience renting/leasing a privately-owned marina slip. Thanks in advance for answers and insight!

I own a slip in a private marina which is organized as a condominium. Individual slip owners have an undivided percentage ownership of the docks, pilings, breakwater, parking lot improvements, harbor office, etc. Unlike a residential condo, there is no "unit" that belongs to each owner individually. Instead, each slip owner "owns" the air above and the water below our respective slips, in addition to an undivided percentage of all the improvements attributable to the marina as a whole.

I anticipate leasing my slip to another boat-owner, which means I will own rental property. I am trying to determine how to calculate my basis for depreciation purposes, and also what depreciation period qualifies for this type of property.

With a residential or commercial rental, one allocates the value or purchase price between land, improvements, and personal property (if any) such as a kitchen refrigerator. Because the marina is on leased land, the association does not have a fee simple interest in either the tidelands or the uplands of the marina. That would imply that my purchase price can be allocated 100% to depreciable improvements, and 0% to non-depreciable land.

However, a boat slip does not seem to fall under either the 27.5-year residential depreciation rule, nor the 40-year commercial property rule. My searches on the IRS web site suggest this might be Section 1250 property (not sure), although the reference below says that wharves, docks, fences, etc. are "specifically excluded from 15-year property".

Does anyone here have experience with renting and depreciating a marina condominium rental?

http://www.irs.gov/Businesses/Cost-Segr ... amework#12

Section 1250(c) defines "section 1250 property" as any real property, other than section 1245 property, which is or has been subject to an allowance for depreciation. In other words, § 1250 property encompasses all depreciable property that is not § 1245 property.

Land improvements (i.e., depreciable improvements made directly to or added to land), as defined in Asset Class 00.3 of Rev. Proc. 87-56, may be either § 1245 or § 1250 property and are depreciated over a 15-year recovery period. Buildings and structural components are specifically excluded from 15-year property. Examples of land improvements include sidewalks, roads, canals, waterways, drainage facilities, sewers, wharves and docks, bridges, fences, landscaping, shrubbery, and radio and television towers. Note that some activity asset classes also include land improvements such as asset class 57.1 of Rev. Proc. 87-56.

 

[eseyoung]

First, I am not by a long shot an expert but I do know a little on the subject.

As I understand in your case you are not able to depreciate any part of your interest. In the situation you described you don't own any thing that could be depreciated. You have an exclusive use deed on the property. Meaning that you own the privilege of using the space you described. Since you don't actually own improvements you can not depreciate them, because, well you simply don't own the improvements...the marina does.

The only way you can depreciate is if the marina was structured so that as an 'owner' you were a share holder in a company that owned the marina. This arrangement is less common because the developer loses his tax advantage.


That is, as I understand. ..maybe someone knows more than me.

 

[THD]

RS-As a tax attorney, I have to give the usual disclaimer that this is not legal advice and should not be taken as such. That said, ESE has it partially right. What you own is indeed the air above and the water below your slip and an undivided interest in the hard assets, i.e. land, docks, buildings etc of the Marina. This is the equivalent of a land condo owner woning an undivided interest in the common areas of a condo complex. I assume there is a Slipowners' Association or something similar, an association that is similar to a Condo Owner's Association. You should be paying monthly or annual Association dues. For IRS purposes, the Association is considered the holder of the common property. It does not depreciate or deduct expenses(primarily real estate tax and land lease costs) in relation to that property. In return, its income, the fees you pay, is not considered taxable income. In short, you have nothing to depreciate. However, your Association fees, assessments and other payment to the Association are deductibe in the period in which you pay them. If you have any other direct expenses with respect to the slip. those are deductible as well. Thus, your net income from the rental is going to be the rent you receive minus the dues you pay.

Hope this helps.

 

[Room Seven]

Thanks to both THD and ESE for your responses. I really appreciate the guidance and information.

This makes sense to me (don't like it, but I get it). As it happens, I also own a vacation condo that is on leased land, although in that case there is an actual unit (i.e. the residence) that I expect to be able to depreciate as rental property.

In the case of the marina slip, I understand about deducting association dues, property taxes, etc. from rental income but somehow thought that I'd be able to deduct my undivided percentage ownership share of the marina's physical assets, especially since the association, as a non-profit corporation, doesn't get a depreciation deduction. I will point my CPA to this thread for guidance as he prepares my tax return.