[homestager4]

I am about to start a business model for my new Home Staging business.
I'm a bit confused about the accounting treatment for my furniture inventory.
The business concept is to offer a service of consultation and furniture rent to real estate owners in order to make the property more appealing to buyers. In the plan the furniture will be rented for 3 months or less if the property sold before. Payment from customer are 50% at contract signature and 50% at delivery of the furniture. When the contract expire the furniture will be stored back to inventory.
Can the "home staging service" be considered as operating lease ?
I assume furniture will be booked in inventory and depreciated every year. What will be a correct depreciation rate from IRS perspective?
Thank you!!
Lele

[morgaine300]

Yes, it's an operating lease because there's no pretending in any way, shape or form that these people have any ownership of the leased furniture. This is just plain downright renting. In fact, I'd called it Rental Income.

The income needs to be spread over the contract period, as its earned. That means 1/3 per month. So when you get paid, it's unearned rental income, a liability. At the end of each month, you can recognize 1/3 of the income.

There is a bit of issue with the fact that the house could be sold sooner than that. That's a little tricky, and honestly I'm not sure the best way to handle that. Can they get a refund if they're done with it early? If so, then that's simple to take care of cause they'd be getting it back. If they don't get any back - that's where I'm not sure if you should just record all leftover revenue immediately upon return or what. You might just still record it over the 3 months.

(If I paid rent for an apartment up front, and ended up leaving one month early and wasn't allowed a refund, I suspect the landlord would be recording the revenue in the month intended even though I left.)

It's a fixed asset, not inventory. (Inventory is for stuff that's for re-sale.) And yes you'll depreciate it. For your books, you can use whichever of the allowed methods you find desirable over whatever you think is an appropriate life. (Furniture - I think 7 years is typical, unless you believe you'd want to replace it sooner.) Straight-line is the easiest.

As for taxes - I'm not a tax expert, and I don't know if there's anything special about rental property. (If not, you'd use MACRS and you'd have to look up years for furniture.) But I can give you the link to their depreciation guide:
Publication 946 (2009), How To Depreciate Property

And you can also ask on the tax forums:
https://www.askmehelpdesk.com/taxes/