Finders/Consulting Fee Deductible

[DMICPA]

Taxpayers use a management company and own apartment buildings and wanted to buy another one. The owner of the management company searched for them and found an apartment building that they subsequently bought 80% of and the mangement company owner bought the remaining 20%.

In consideration for finding the property and negotiating the deal, the management company owner charged the taxpayers $50,000 which they paid.

NOW, I believe this is a deduction on Schedule E along with the apartment operations of the taxpayers return under consulting, management. The amount is $50,000 so this is a large number.

I can't find any reason why this fee would be considered a capital item for the taxpayers and yet currently includable as income by the management company owner. No 1099 was issued.

Guidance please

[ChEAr$]

Taxpayers use a management company and own apartment buildings and wanted to buy another one. The owner of the management company searched for them and found an apartment building that they subsequently bought 80% of and the mangement company owner bought the remaining 20%.

In consideration for finding the property and negotiating the deal, the management company owner charged the taxpayers $50,000 which they paid.

NOW, I believe this is a deduction on Schedule E along with the apartment operations of the taxpayers return under consulting, management. The amount is $50,000 so this is a large number.

I can't find any reason why this fee would be considered a capital item for the taxpayers and yet currently includable as income by the management company owner. No 1099 was issued.

Guidance please

On the other hand, I can't think of any reason this fee in connection with a new property could be currently deductible. Sounds like an item to be capitalized.

[Gretel]

Agree. Any costs associated with the purchase of a capital asset needs to be capitalized or amortized including fees paid to us if applicable.