What Is This?

[Kram BergGold]

My client owns a rental property. In 2013 he paid a plumber $11,000 for a new boiler and $2,000 for a water tank. The boiler was delivered and partially assembled but not installed. Then the plumber disappeared. My client is taking legal proceedings but has not recovered anything. So my client has a boiler that no one wil buy that cost him $9,000. Do we write this off as a current year expense as an item with a useful life of less than 1 year? Do we not deduct it until he pays someone to take it away? Do I start depreciating it and then claim a 4797 loss when it is taken away? Any other ideas?
To me the other $2,000 is clearly a theft loss and unitl he is sure he can't get any of it returned through legal proceedings there is notihng to do with it, correct?.

[Koss]

Theft Loss

Kram BergGold wrote:

To me the other $2,000 is clearly a theft loss and unitl he is sure he can't get any of it returned through legal proceedings there is notihng to do with it, correct?.

If he filed a police report, it might be reasonable to treat the $2000 as an outright theft, and take it as a theft loss immediately. If he recovers any of it, you can report it as a taxable recovery in that year, or maybe even just do an amended return.

The boiler is a different matter. I guess I need to ruminate on that one.

Why couldn't he get someone else to finish the job? It has no salvage value at all? Not even scrap metal??

I suppose I would report it on Form 4797 as a disposition of a business asset in the year that he disposes of it.

I would not start depreciating it. It hasn't been placed in service.

BMK

[Koss]

Disposition

Maybe he can donate the boiler to a local trade school.

No joke. Problem is, many of those schools are for-profit operations, so it wouldn't qualify as a charitable donation. Nevertheless, they might haul it away at no charge.

Or he might be able to donate it to a prison.

Seriously. That would qualify as charitable, because it would be a government entity. Many prisons have internal training programs in the skilled trades.

BMK

[Kram BergGold]

Charity?

I fear the problem with donating it is, it has a very low FMV, basically just salvage value. No one will buy it because they are afraid it is damaged. Plus it is unusually large so not useful to most people. I guess taking it out of the box and partially assembling it but not attaching it to the pipes makes it not placed in service. I guess we can do 4797 for business even though no depreciaton becasue the depreciation was not allowed or allowable.

[TaxGuyBill]

I'm confused why he spent $9,000 on a boiler and is now just letting it sit around. I assume he bought it because he needed it. Why doesn't he have it installed by another plumber?

[Kram BergGold]

Boiler

Part of the deal here is he was switching from oil to gas. Other plumbers have said this boiler is too big for the job. No one wants to deal with it.

[Kram BergGold]

More info

The bolier is a commercial grade rather than residential. To install it would mean all kinds of permitting and inspection issues and it would be more costly to operate than the correct type. This is why he does not want to install. It is more cost efficient to start fresh.

[JohnH]

Landlord's note to self:
"This is what sometimes happens when you always go with the lowest bid".

[Kram BergGold]

Thanks and More on Casualty Loss

From the comments, I have decided the $2,000 loss will be taken in 2013 as a theft loss. The $9,000 will be taken as a 4797 loss in 2014 when the boiler is junked. What I also leanred is if you use the simplified home office method the casualty loss connected to it is personal. I am going to assume that the 4797 loss would be personal as well. So I will be using the regular method for their home office.

[Koss]

Home Office??

if you use the simplified home office method the casualty loss connected to it is personal. I am going to assume that the 4797 loss would be personal as well.

I thought the boiler and the water tank were for a rental property. How is the disposition of the boiler on Form 4797 "connected" to a home office?

BMK

[Kram BergGold]

Answer

The property is 2/3 rental 1/3 personal home and office. On the original post I decided to leave out the bit about the office just to keep is straight forward.

[JohnH]

Sounds like the conversation I have with some of my clients at times...

"I decided to leave out the bit about the multiple 1099-B's, just to keep it simple when I asked for the fee estimate."