jshtax Posted March 31, 2015 Report Share Posted March 31, 2015 Client has rental property that was damaged due to a flood. There was a master policy in place for building so no insurance claim was filed. Below is a list of the repairs but I am not sure if these should be expensed or capitalized. Any help appreciated! These #s are rounded. 1. $18,000 for mold and water remediation 2. $27,783 in reconstruction cost...partial floor replacement, paint, repair walls and molding and some electrical work. Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted March 31, 2015 Report Share Posted March 31, 2015 There was a master policy in place for building so no insurance claim was filed. ????? Why not? Quote Link to comment Share on other sites More sharing options...
Pacun Posted March 31, 2015 Report Share Posted March 31, 2015 (edited) Repairs. They didn't improve or extend the life of the asset. If they have insurance, they should file a claim. While depreciation is clear "allowed or allowable", this type of claims are also treated like that. For example, if you run your car 20K miles for your employer and your employer refunds you mileage, you cannot claim it on 2106 because you should do it with your employer. Same thing with the insurance and at least you should try to get some money from them before you take a deductions on your taxes. The least they should do is to file a claim with the insurance and if they deny it, then they will have documentation in case the IRS needs to see it. Edited March 31, 2015 by Pacun Quote Link to comment Share on other sites More sharing options...
Abby Normal Posted March 31, 2015 Report Share Posted March 31, 2015 ????? Why not? The condo association's master policy covered his unit. Quote Link to comment Share on other sites More sharing options...
Pacun Posted March 31, 2015 Report Share Posted March 31, 2015 Casualty loss? Quote Link to comment Share on other sites More sharing options...
GeneInAlabama Posted March 31, 2015 Report Share Posted March 31, 2015 Did the condo association insurance pay for the loss? If so, how was there a loss? Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted April 1, 2015 Report Share Posted April 1, 2015 The condo association's master policy covered his unit. Apparently, it did not cover much. Hope he learns from this and gets his own policy now. I'd say whatever the insurance did not cover should be reported as a casualty loss. Quote Link to comment Share on other sites More sharing options...
jklcpa Posted April 1, 2015 Report Share Posted April 1, 2015 jshtax, please check into the proper handling of these expenditures under the new repair regs. I don't have time right now to look into it fully, but I remember that this was addressed within the new regs. I quick google search turned up this that I cut from another site, but you should read up on whether this made it to the final regs: Casualty loss rules. The 2008 proposed regulations required capitalization of any repair or replacement costs for property for which a casualty loss has been taken (the "casualty loss rule"). The new regulations retain this rule, based on the premise that taxpayers must capitalize the cost of acquiring new property. The replacement of property damaged in a casualty may involve the replacement or restoration of the entire property or components of that property. In either event, the damaged part of the property is treated as retired, the basis attributable to the damaged part is removed, and the damaged part is restored or replaced. Thus, costs to restore or replace the portion of property for which basis has been recovered is analogous to the costs of acquiring new property and must be treated as capital expenditures. 1 Quote Link to comment Share on other sites More sharing options...
jshtax Posted April 1, 2015 Author Report Share Posted April 1, 2015 jshtax, please check into the proper handling of these expenditures under the new repair regs. I don't have time right now to look into it fully, but I remember that this was addressed within the new regs. I quick google search turned up this that I cut from another site, but you should read up on whether this made it to the final regs: Casualty loss rules. The 2008 proposed regulations required capitalization of any repair or replacement costs for property for which a casualty loss has been taken (the "casualty loss rule"). The new regulations retain this rule, based on the premise that taxpayers must capitalize the cost of acquiring new property. The replacement of property damaged in a casualty may involve the replacement or restoration of the entire property or components of that property. In either event, the damaged part of the property is treated as retired, the basis attributable to the damaged part is removed, and the damaged part is restored or replaced. Thus, costs to restore or replace the portion of property for which basis has been recovered is analogous to the costs of acquiring new property and must be treated as capital expenditures. There is no way possible to calculate this. 12% of total floor had to be ripped up, 1 wall was torn down and rebuilt(drywall replaced), electrical wiring in one room rewired. Condo had $25,000 master policy of which his % was $16,900 that his insurance company covered and would no pay anything more(USAA did not offer mold remediation nor did the master policy) than his portion of the deductible. The master policy paid an extra $6500 and nothing more. Total damages were $45,000-$16,900 deductible paid by content insurance - $6,500 paid by master policy left uncovered cost of $21,600 plus mold $12,000 total out of pocket $33,600. Quote Link to comment Share on other sites More sharing options...
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