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Idle Asset Rule

Posted by Mike C Posted on Oct 17 2011

Depreciation "Idle Asset" Rule: Under the idle asset rule, you can continue to take depreciation deductions over the useful life of the asset. The rule applies when the asset is available for use should the occasion arise, even though you don?t actually use it.A recent Tax Court Memo clarified this rule.

Charles Douglas
, TC Memo 2011-214 (Tax Ct.).
Taxpayer operated a delivery company (taxed as an S corporation) that deducted $125,000 of the $135,000 purchase price of a Cessna 172 aircraft in 2007. Taxpayer's husband took flying lessons in 2007, but never advanced beyond a student license, and no one else in the company was licensed to use the aircraft for delivery purposes. The Tax Court dismissed taxpayer's attempt to employ the "idle asset" rule?the Cessna was used for training but was "simply never available for its alleged business function . . . ." Since the Cessna was not available to perform its intended function in 2007, the Tax Court disallowed the Section 179 (and related upkeep and storage) deductions. According to the Tax Court: "An aircraft cannot be considered ready and available for business use without a suitable pilot to fly it."