Depreciation of Greens and Tees

According to Rev. Rul. 2001-60, land preparation costs in the original construction or reconstruction of golf course greens and tees may be subject to depreciation under Sec. 167.

Facts

Two types of golf course greens currently in use are push-up (or natural-soil) greens and modern greens. Push-up or natural-soil greens are essentially landscaping that involves some land reshaping or regrading. The soil is pushed up or reshaped to form the green. While push-up or natural-soil greens may have limited irrigation systems (such as hoses and sprinklers adjacent to the greens), they do not have subsurface drainage systems.

Modern greens make use of technological changes in green design and construction and contain sophisticated integrated drainage systems. The construction of a modern green occurs after the general earthmoving, grading and initial shaping of the area surrounding and underneath the green. These greens are constructed with a network of subsurface drainage tiles or interconnected pipes, one or more layers of gravel or sand particles or both, a rootzone layer and a variety of turfgrass. Over time, the modern green loses its effectiveness as a drainage system due to tile or pipe deterioration, or sediment blockage. Replacement of the subsurface drainage tiles or pipes requires excavation and replacement of the layers above the tiles or pipes. The subsurface drainage tiles or pipes typically require replacement within 20 years.

The costs to prepare land in the original construction or reconstruction of push-up or natural-soil greens and tees are still classified as nondepreciable land. However, the costs of preparing land for modern greens, which are so closely associated with depreciable assets (such as a network of underground drainage tiles or pipes) that the land preparation will be retired, abandoned or replaced contemporaneously with those assets, must be capitalized and depreciated over the depreciable assets' recovery period with which the land preparation is associated.

Modern greens are included in asset class 00.3, Land Improvements, of Rev. Proc. 87-59, and have a 15-year regular depreciable life and a 20-year alternative minimum tax life. However, the general earthmoving, grading and initial shaping of the land surrounding and underneath a modern green that occur before the construction, continue to be associated with the nondepreciable land. Subsequent operating expenses for sod, seed, soil and other sundry maintenance are deductible as ordinary and necessary business expenses.

Conclusion

Taxpayers may continue to use their present method of treating the cost of modern greens placed in service during any tax year beginning before Nov. 29, 2001, as a nondepreciable capital expenditure. To adopt this new depreciation method, taxpayers must change their accounting method in accordance with Rev. Proc. 99-49 (or its successor).

From Mitchell L. Stump, CPA, Mitchell L. Stump, CPA, PA, Palm Beach Gardens, FL, and Hans Sprohge, CPA, ABV, Ph.D., Professor of Accountancy, Wright State University, Dayton, OH (Neither affiliated with Baker Tilly International)