Depreciating - Posted by Erick

Posted by Erick on July 13, 2003 at 15:02:17:

I figured out the 179 question. I guess the issue is not whether or not it’s personal property but rather whether it’s for business use. And, since residential real estate is not considered a “business” (it’s an investment activity, right?) then those items used in RE do not qualify. …except for general business equipment.

Depreciating - Posted by Erick

Posted by Erick on July 12, 2003 at 14:27:54:

Is it correct that any expenditures between the time a property is purchased (not including property acquistion) and the “in-service” date needs to be capitalized?
So, would this also include things that would normally be expensed like: labor to clean the property, mowing the lawn, cleaning supplies, utility expenses, hazard insurance?

And all of these expenditures would have to be capitalized to the “building” asset (27.5 yrs), correct? So, in terms of componentizing, you wouldn’t be able to apply any of these general expenditures to any other component or asset besides “building”. Is this correct?

And therefore, if these expenditures have to be capitalized to the “building” asset, none would qualify for the section 179 or special depreciation allowances since these require lives

Re: Depreciating - Posted by JHyre in Ohio

Posted by JHyre in Ohio on July 12, 2003 at 15:25:27:

The rules for what gets capitalized are not simple. Roughly: Any expenditures that significantly increase the property’s value or materially extend its life are capitalized. Any expenditures that relate to repairs or current period items (e.g. - utilities, taxes, interest, lawn-mowing, etc.) are expensed. The distinction isn’t always clear and there’s often lots of room to argue. Any expenditures that must be capitalized should be capitalized to the appropriate property - so a new fence is a 15-year land improvement, not a part of the 27.5 year building. Property that is part of a dwelling does not get 179 treatment…but non-real estate “overhead” items for an RE business (e.g. - computers, automobiles) CAN get 179 treatment.

John Hyre

Re: Depreciating - Posted by Erick

Posted by Erick on July 12, 2003 at 21:08:42:

I guess we can talk about these things on Tuesday evening, John…
But isn’t it so that everything spent on a property prior to placing it in service needs to be capitalized even if it would normally be expensed once it’s in service?

I hear what you’re saying about business equipment type items qualifying for sec 179 but the way I read the section 179 rules (though I’m only reading the publication-946- and not the actual code), it says that tangible personal property also qualifies. Like you say, it does exclude any building or structural component but it also says (pg14) that “Tangible personal property is any tangible property that is not real property. It includes the following property: …-Property contained in or attached to a building (other than structural components), such as refrigerators, grocery store counters, office equipment, printing presses, testing equipment, and signs.”

So, I take this to mean that any five year property like stoves and carpet are fine. What am I missing?