Expense or Depreciate

[jainen]

Around here

>>$24K is a lot<<

Around here you couldn't draw the permits for $24K. First you would have to hire an engineering firm to do an environmental impact study for trenching near the "heritage" tree, with particular attention to the butterfly migration pattern. Then you need a lawyer to depose professional arborists to keep the neighbor's lawsuit under control. Next comes the public hearing about your contractor's dust and noise abatement plan. Of course you will lose on all those points, so you have to appeal and negotiate a compromise with a mediator for a new landscape architect's plan to reroute the wires under the roadway, and then you have to repeat all the above for the new paving project. Meanwhile the Air Pollution Control Board is mad at you because all your tenants have been running generators since the electricity cut out. When all that is finally settled, you go to the state Coastal Commission. After another series of reports and hearings and appeals they will agree as long as the electricity is not used for lighting (which detracts from the natural beauty of the mobile home site). But by now the original county permit has expired....

[S T]

Repairs vs Improvements

A different approach maybe!
Well I have to say from some experience, repairs can be costly. We had a water damage, as a result the "repairs" were close to $40K, by the time, the old was ripped out, walls, floor, carpet, bathtub, tile surroundings, plumbing replacements paint, and some windows, etc. Really not much was upgraded to "better or beyond " but replaced with current "standards" or as the insurance company stated current replacement values (yes we had insurance coverage).

But the point being, wouldn't it have been a repair not an improvement??? Without the repair or replacement the property value would have declined. No increase in the property value when it was completed.

So based on the question posted, if the tree roots damaged the electrical wires and no service was available to the individual "pads" would it not be a repair regardless of cost. If additional electrical services were included at the time of repair (as Jainen pointed out in prior post) such as fiber optics, etc then maybe an improvement. Seems like intent on the replacement of the electrical cable/wiring would be the determining factor on how to handle on the tax return. Was it the intent to repair damaged wiring (which if not done would have a property value decline) or the intent to do upgrade and restoration, and would it add an increase to the property value.

From Pub 527(Residential Rental Property) for comparing repairs vs improvement

Caution: Work you do (or have done) on your home that does not add much to either the value or the life of the property, but rather keeps the property in good condition, is considered a repair, not an improvement.
Repairs. A repair keeps your property in good operating condition. It does not materially add to the value of your property or substantially prolong its life. Repainting your property inside or out, fixing gutters or floors, fixing leaks, plastering, and replacing broken windows are examples of repairs.

If you make repairs as part of an extensive remodeling or restoration of your property, the whole job is an improvement. Improvements. An improvement adds to the value of property, prolongs its useful life, or adapts it to new uses.

Sandy

[Joe Btfsplk]

Some thoughts

If the roots destroyed the original wiring, it would have been a slow process so it would NOT be a casualty loss.
If it was underground, that might not be the same as 'new wiring' since the 'new wiring' might be interpreted as wiring inside a building. This could be argued both ways, so I would think it might be an expense or it might be a capital improvement. In other words, it would be best to research further. There may be similar cases in which some definite precident would serve as a guide.

If you can't find anything that clearly states which way this should be handled, the best bet would be to use your own best judgement and if you expense it, explain to your client that it could be challanged by the IRS. Right or wrong, the odds are that the IRS wouild not select the return for an audit, which would make the question moot.

[cpadan]

[QUOTE= Right or wrong, the odds are that the IRS wouild not select the return for an audit, which would make the question moot.[/QUOTE]

Now that is what I call tax audt roulette.
Dan

[Gretel]

I would expense because:

1. The component part (replacement wires) are usually part of a larger unit (campground).

2. The useful life of the wires is coextensive with the useful life of the campground. If at all, the useful life of the wires is shorter not longer than the useful life of the campground.

3. The wires can not function without the campground and the campground can not function without the wires.

4. The wires need to be maintained (replace) whil affixed to the campground.

See also FedEx. v. Comm. U.S. 6th Cir. 2005-1, affirming FedEx v. Comm., 2003-2, USTC

[Ballscientist]

Expense

1. He does not own the Mobile Home; He can't capitalize the someone else's property.

2. Mobile home does not in the Fixed Assets category because it is movable. It is similar to furniture.

The poster is a real estate expert.

[veritas]

Ah

The scientific method!

[Ballscientist]

The scientific method!

Capitalize someone else's furniture = thief

Let's say Veritas owns a TV, I capitalize your TV (record your TV as mine). Am I a thief?

[Bees Knees]

2. Mobile home does not in the Fixed Assets category because it is movable. It is similar to furniture.

Some furniture is very heavy, and thus not very movable, and so in that case it would be a fixed asset.

Some land moves due to earthquakes, and thus not a fixed asset.

It all depends on the theory of fixed asset relativity.

[Joe Btfsplk]

Repair vs Improvement

Page 7-5 of the Tax Book states:
Exception: repairs made as part of .......a restoration project are considered to be part of the improvement. Improvements should be capitalized.

Replacing a roof would be an improvement while repairing a roof would be an expense.
Same would apply to replacing the entire wiring system vs repairing the original wiring.

A repair might "improve" something, but completely replacing it would be a horse of another color.

Once I did a sales tax audit in which the company was repairing aircraft cylinders by chrome plating them. The state contended that this was ''processing' while the company considered it repairing. It went to a hearing and it was decided that it was a repair. In this case the cylinders were not replaced; they were restored to a workable condition which improved them, but did not replace them.

[ballscientist]

the biggest issue is that you can only capitilize your own assets, not someone else's assets.

the mobile home is owned by someone else.

[Unregistered]

the biggest issue is that you can only capitilize your own assets, not someone else's assets.

the mobile home is owned by someone else.

Huh? Can you elaborate Ball Scientist? Do you mean to say that business assets can not be capitilized?

[Unregistered]

Huh? Can you elaborate Ball Scientist? Do you mean to say that business assets can not be capitilized?

The point is

Do the expenses (your term - business assets) have a future benefits .......? There is no way you can call this movable mobile home "the fixed assets".

[Joe Btfsplk]

Mobile Home

A mobile home may not be a 'fixed' asset from a mobility standpoint, but it is a depreciable asset and cannot be expensed.
Wiring in the mobile home would probably be expensed since it would gernerally be a repair, not a complete replacement, but rewiring the campground is not the same thing.