City assessment for street, curb & gutter, and storm sewer

[sdtaxman]

I have a client that was assessed $43,000 for the new paved street, curb & gutter and storm sewer that replaces the old gravel road. He has had his commercial building in service since 2007. I am trying to make a determination on the ability to depreciate this assessment as a land improvement. Any information or thoughts are greatly appreciated. I have never ran across this before. If you were to purchase a lot in the subdivision today those assessed costs would be added to the cost of the lot and I believe considered land cost but since he was already there and doing business I am not sure. Thanks

[Nashville]

Deductible as Taxes

Interesting question South Dakota. Depreciable? If land is bought initially, there is no depreciation. Assessed later? I dunno.

If this $43,000 can be split in such a way that any portion of the bill are for repairs or something OTHER than the improvements, that portion would be deductible as a local business tax.

[ruthc]

Increase basis

According to Pub 17 under "Real Estate-Related Items You Cannot Deduct" it states: "Deductible real estate taxes generally do not include taxes charged for local benefits and improvements tending to increase the value of your property. These include assessments for streets, sidewalks, water mains, sewer lines, public parking facilities, and similar improvements. You should increase the basis of your property by the amount of the assessment. Local benefit taxes are deductible only if they are for maintenance, repair, or interest charges related to those benefits. If only a part of the taxes is for maintenance, repair, or intest, you must be able to show the amount of that part to claim the deduction."

Hopefully, this helps!

[sdtaxman]

Basis increase, but depreciable?

Thanks Ruthc. The helps confirm that it does increase basis but is that then depreciable as a capital asset?

[ruthc]

Depreciate

Yes, you can depreciate the assessment. But again, if you can prove any separate amount in the assessment as a repair, maintenance, etc. you can expense those amounts. You can probably get that amount from the town/city assessor. If not depreciate the total assessment amount with your commercial building, etc.

[taxea]

I am curious as to whether the TP requested the upgrade or this was something the city did and then assessed the property owner.

[sdtaxman]

This assessment was an upgrade that the city made, it was not requested by the taxpayer.

Would you depreciate this as a land improvement, 15yr life and then it would qualify for bonus depreciation?

[ruthc]

Read Publications

I would suggest reading the several pubs available in order to get the specific rule to fit your situation. Goggle the subject matter or go to the irs pubs.

[mactoolsix]

From Pub 527 http://www.irs.gov/publications/p527...link1000219067

Assessments for local improvements. Assessments for items which tend to increase the value of property, such as streets and sidewalks, must be added to the basis of the property. For example, if your city installs curbing on the street in front of your house, and assesses you and your neighbors for its cost, you must add the assessment to the basis of your property. Also add the cost of legal fees paid to obtain a decrease in an assessment levied against property to pay for local improvements. You cannot deduct these items as taxes or depreciate them. (my emphasis)

Mike

[Roland Slugg]

This is an interesting question, and the above replies all make good points. I would have difficulty treating the cost as a land improvement, however, and depreciating it over 15 (or some other number of) years, because the improvements were probably not added to my property. Unless my property extends to the middle of the street, which is possible, but not likely, then the improvements were added to city-owned property adjacent to mine. In that case the improvements (presumably) add value to my property, and the imposed cost can be capitalized.

But how is the assessment being paid? Is it a separate bill requiring an annual or semi-annual payment? Or does it show up on the property tax statement simply as a new line-item added to the rest of the county taxes? If it's the latter, I would be strongly inclined to just deduct the additional annual amount as property taxes. Yes, the road may now be paved instead of gravel, and the sidewalk is now newer and nicer than before, but IMO it's really all a form of "maintenance" of public property, and I'd be inclined to deduct the added amount if it's billed along with the rest of the property taxes.

[Kram BergGold]

I would depreciate over 15 years

To me this is a land improvement and I would depreciate over 15 years. It is analogous to a lesee making improvments to a building. When the tenant leaves the landlord gets to keep the improvements. This does not preclude the tenant from amortizing the improvement.

[sdtaxman]

In reply to the payment. This is a separate bill and was due all at one time. I appreciated all the thoughts and information.

[mastertaxguy]

Special property tax assessments depreciation?

To me this is a land improvement and I would depreciate over 15 years. It is analogous to a lesee making improvments to a building. When the tenant leaves the landlord gets to keep the improvements. This does not preclude the tenant from amortizing the improvement.

Why is the answer to the initial query not found in TTB, P. 5-12, right column, middle of the page, in a paragraph beginning "Do not deduct online 23...."

The facts do not state the improvements were to the Taxpayer's property, but to (it appears) public roads, the costs paid by a public entity, and later assessed to the TP and presumably other property owners adjoining the improved road and sewers. Thus, asset class 00.3 does not apply, as the improvements were NOT directly to or added to the TP's land. TP's land may benefit from the improvement but the facts do not state that, for example, a driveway from the road to his building entrance was paved by the municipality/public entity, or that he had them put sidewalks on the property separate of the public right of way.

If the taxpayer paid for sewer or water connections from his property to the new sewer (and maybe water) line(s), to me that would be an improvement directly to the land, and subject to depreciation. But a special assessment for paving the public road and installation of public sewer (or water) lines is not a specific improvement to the taxpayer's property, it seems to me. Otherwise, the assessment should be added to the TP's basis. While I like pushing envelopes, I don't like buying audits for myself.

[FEDUKE404]

When all ELSE fails. . .

From IRS Publication 530:


Assessments for local benefits.

You cannot deduct amounts you pay for local benefits that tend to increase the value of your property. Local benefits include the construction of streets, sidewalks, or water and sewer systems. You must add these amounts to the basis of your property.
You can, however, deduct assessments (or taxes) for local benefits if they are for maintenance, repair, or interest charges related to those benefits. An example is a charge to repair an existing sidewalk and any interest included in that charge.
If only a part of the assessment is for maintenance, repair, or interest charges, you must be able to show the amount of that part to claim the deduction. If you cannot show what part of the assessment is for maintenance, repair, or interest charges, you cannot deduct any of it.


FE

[mastertaxguy]

Rtfm

From IRS Publication 530:


Assessments for local benefits.

You cannot deduct amounts you pay for local benefits that tend to increase the value of your property. Local benefits include the construction of streets, sidewalks, or water and sewer systems. You must add these amounts to the basis of your property.
You can, however, deduct assessments (or taxes) for local benefits if they are for maintenance, repair, or interest charges related to those benefits. An example is a charge to repair an existing sidewalk and any interest included in that charge.
If only a part of the assessment is for maintenance, repair, or interest charges, you must be able to show the amount of that part to claim the deduction. If you cannot show what part of the assessment is for maintenance, repair, or interest charges, you cannot deduct any of it.


FE

True enough, but the issue does not involve a homeowner. The facts indicate the assessment was for a new, paved road, gutters and a new sewer line, not for repairs to the same. Thus, it assessment should be added to the TP's basis (at least in my view).