How to handle rebate for an asset received a year later

5 Replies

I had a new hvac system installed in 2014. I depreciated a portion of the asset according to MACRS. Now, in 2015 I received a rebate for the HVAC system. Any thoughts on how to handle this in my books and tax wise? Thanks!

Technically, taxable in the year received.

@Paul Stern  I've been trying to find the answer and conferring with a few of my accounting buddies. 

The general consensus is that the rebate will need to reduce the purchase price of the asset and your accumulated depreciation and depreciation expense accounts will need to be adjusted to reflect the change in cost basis. 

If you are on the cash basis accounting and the expenses are related to say "general business expenses," then Arlan would be partially correct - it would be recognized as income to the extent it is not offset by current year "general business expenses." 

However, people who don't need to report their financial statements to GAAP generally use the modified cash method of accounting which allows you to use the cash basis of accounting for short term expenses and the accrual basis for long term expenses (i.e. HVAC). So in your case, I think the rebate will need to be applied retrospectively and you will need to adjust the three accounts mentioned above: costs basis of asset, accumulated depreciation, and depreciation expense. 

This is just my opinion as I don't know your situation well enough to give you a definitive answer. 

@Brandon Hall  thank you for doing some research and asking other experts. At first read I agree with your assessment. I just received my 2014 return for review. This should be a great topic for discussion with my accountant. And timely. Maybe we can accrue these before submitting to the IRS. 

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