Expense or Depreciate

[dsi]

My client owns a mobile home park. He doesn't own the mobile homes, just the park. In 2006 he had to replace about $24000 worth of electrical lines (labor & material) because the roots of a very large tree destroyed the old lines. What would you recommend...expense? depreciate?

[veritas]

Expense (fill because the board says my message is to short)

[dsi]

Thank you Veritas...I was leaning towards that direction. Always nice to hear other opinions though.

[jainen]

capital improvement

Generally this would be a repair, as long as he didn't take the occasion to upgrade (even if required by code). If he extended the lines or installed fiber optics or used titanium conduit or something, that's a capital improvement.

[Unregistered]

Depreciate. The only way to Expense if it was a casualty loss.
Craig Thomas EA

[Bird Legs]

Repair? Cap. Improve.?

In either case, was there insurance to cover this? If so, how much did the insurance pay?

[jainen]

Please explain your theory

>>The only way to Expense if it was a casualty loss<<

Please explain your theory that whether it is a capital improvement is determined by the REASON for the work instead of the NATURE of the work.

[sea-tax]

I Vote expense !

[Bees Knees]

We have 3 expenses and 1 depreciate....Do we have any other takers on this?

Going once....

Going twice....

[Unregistered]

Look in Publication 535 Chapter 1 under improvements. Read that section. It will help in your decision. As always if audited How would you defend your position to the IRS? 24K sounds a tad bit too much to repair some electrical lines.

Craig Thomas EA I opted to depreciate

[sea-tax]

Look in Publication 535 Chapter 1 under improvements. Read that section. It will help in your decision. As always if audited How would you defend your position to the IRS? 24K sounds a tad bit too much to repair some electrical lines.

Craig Thomas EA I opted to depreciate

so are you saying that cost is what determines if you capitalize or expense?

[Oxtrainer]

Expense or Depreciate

A repair is a repair, is a repair, is a repair and if its costly it is still a repair.
I vote expense.

[Black Bart]

Well, I guess it depends

so are you saying that cost is what determines if you capitalize or expense?

on how big an amount of money it is ($24K is a lot) and how scared I am that it'll be audited.

P.S. Look down the page at the "Amish" post -- there's a UR poster who's a Mennonite and may be able to get you out of that SS tax (if you will swear that money has nothing whatever to do with your "conversion").

[jainen]

infallible guide

>>Look in Publication 535 Chapter 1 under improvements.<<

Okay, I did that. First of all, it quite pointedly doesn't say a word about 24K being "a tad bit too much," so give up on any argument based on dollar amounts. It does give "new electric wiring" as an example of an improvement. In the original post there are new wires, not new "wiring" (which by definition is the circuit). The new wires restore the existing function and value. They don't expand the property's value or extend its life or adapt it to a new use (unless they involve an upgrade as I mentioned before.)

At least, that's how I read Pub 535. How's about you tell us what you are looking at in that infallible guide.

[veritas]

If I had to argue the point first of all I would leave out the word "old" and tell the interested party the line was damaged by the tree root and needed to be repaired to former state.