Capitalizing Renovation Expenses

[tempora]

My client rents real estate for his trading business from a real estate LLC which he owns.

He has no formal lease agreement and carried out significant renovations (Over $70K) on the building which he is planning on writing off as repairs in 2008 on his trading business books.

I intend to advise him to fill out a formal lease agreement and write this off over the lease term.

Would this be his best option even If he does a two year lease?

Thanks,

Anthony

[taxea]

I think he is creating a huge problem for himself if he doesn't follow the basis/depreciation/amortization rules. I would refuse to include it in the return unless it is done properly. taxea

[S T]

Self Rental

Does this fall under the self-rental rules?

I don't think renovations in the amount of $70,000+ would fly as repairs.

Some of the expenses might be a repair to bldg, but I would think that most of the cost would be a rennovation/remodel and subject to longer term depreciation.

Sandy

[JON]

Term of lease???

There is no such writeoff period. It is 15 years and maybe you can get the additional first year on it. The only alternative is if it was for putting machinery in than you can get quicker writeoff.

[BOB W]

Lease period for determining a write-off period is for Leasehold Improvements of the Tenant, not the landlord. Landlord must use normal depreciation period.

[Davc]

Does this fall under the self-rental rules?

Yep. if his LLC is being taxed as a disregarded entity.

[Burke]

Assuming his "trading business" is not a corporation.