imjulier Posted March 5, 2009 Report Share Posted March 5, 2009 I just wanted to check in with some of the great minds on this one....I'm sure many of you have seen it before. Client has rental property which was trashed by renters and required $20K+ to get it back in shape and functional as a rental. Clients claim (and are probably right) that "improvements" don't add value to the home and that if not totally trashed by the renters, they would not have done any of this work on the house. "Improvements" they are describing to me all sound like capital assets as they have a life of many years. Of course, my plan is to capitalize and depreciate but client doesn't want to do this as they are out $20K and at least want to see a tax benefit from this. I explain basis and how this will help them out when they sell the property. Do any of you see any justification for expensing vs. capitalizing? Thanks for any feedback. Julie Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted March 5, 2009 Report Share Posted March 5, 2009 Well, having once been a landlord who's property was trashed [even to the extent of defecating in the closets, taking not just the light bulbs but the light fixtures ripped out of the ceiling, etc] I'd have no problem with expensing any repair. Now, having said that, if they decided to make MAJOR changes to the building, that would be depreciated. But even though it may seem like a lot of money, if the carpet, for example, that is replaced was good carpet until the tenets destroyed it, it's still a repair, not an improvement that would be capitalized. I'd say that you should be flexible, and sensitive to the situation, and give your client the benefit of the doubt where possible. Perhaps there is a reasonable compromise that you can both accept? Quote Link to comment Share on other sites More sharing options...
Janitor Bob Posted March 5, 2009 Report Share Posted March 5, 2009 I just wanted to check in with some of the great minds on this one....I'm sure many of you have seen it before. Client has rental property which was trashed by renters and required $20K+ to get it back in shape and functional as a rental. Clients claim (and are probably right) that "improvements" don't add value to the home and that if not totally trashed by the renters, they would not have done any of this work on the house. "Improvements" they are describing to me all sound like capital assets as they have a life of many years. Of course, my plan is to capitalize and depreciate but client doesn't want to do this as they are out $20K and at least want to see a tax benefit from this. I explain basis and how this will help them out when they sell the property. Do any of you see any justification for expensing vs. capitalizing? Thanks for any feedback. Julie I may be wrong (my daughter and fiance' inform me that I usually am), but I would lean towards expensing this stuff....It would seem to me that these improvements are not increasing the value of anything...only recovering value that previously existed prior to rentors destroying it. If, however, any of it is for items that did not exist or cannot be seen as a direct improvement...or that cause value to be higher than before rentors destroyed....that would be capitalized. Quote Link to comment Share on other sites More sharing options...
RoyDaleOne Posted March 5, 2009 Report Share Posted March 5, 2009 Maybe even a business casualty loss, or a Section 165 loss. Who knows? Quote Link to comment Share on other sites More sharing options...
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