Off Site Improvements

[DaveO]

A home builder is required to pay for various off-site improvements. He is required to improve an area to be a commans area. This expense I split between the adjacent properties and included the pro-rata share of the cost in the basis of the lots to be developed and sold. Now, in the same development, he is required to purchase and construct some signs for the development. He will not own the property so I can't depreciate it. It isn't adjacent to any of his lots and provides no benefit to any of the residents. I think I should be able to deduct the entire amount as a current business expense. Any thoughts?

[OldJack]

Your conclusions appear correct to me.

[Matt Sova]

Development costs

When there are costs that effect an entire development I split those costs amongst all lots and deduct as the lots are sold.

[OldJack]

When there are costs that effect an entire development I split those costs amongst all lots and deduct as the lots are sold.

Well... I read his question as an expense for advertising which should be current year deductible expense.

[DaveO]

Thank you for your input.

Do you see this sort of thing in other areas of the country? Sometimes a developer will be made to pay for a park or trail that doesn't even touch his development.

[OldJack]

Developers gota do what they gota do to get the local zoning to build their subdivision. Its usually designate part of their owned land as common ground or to widen the highway at the entrance to the subdivision. Making the developer buy other land and donate for a park is really ripping the developer off (blackmail) and should be illegal but its not when the government does it.

[Snaggletooth]

Land Improvements

DaveO I have a client with an almost identical situation.

I am treating his development costs as inventoriable (not depreciable) Land Improvements. The entire cost is accumulated over the number of lots and become expensed when each lot is sold.

Claiming that sign costs and other required costs are currently deductible without amortizing because of Old Jack's rip-off corrupt local officials, is similar to saying all costs of meeting local codes are deductible without first being capitalized as inventory.

[OldJack]

Claiming that sign costs and other required costs are currently deductible without amortizing because of Old Jack's rip-off corrupt local officials, is similar to saying all costs of meeting local codes are deductible without first being capitalized as inventory.

Snag, I'll bet you would capitalize the developer's expenses for his mistress because she spent those hours on site in the sales trailer. A developer is allowed a current deduction for general operating expenses.

[jainen]

he doesn't have to

>>Making the developer buy other land and donate for a park is really ripping the developer off (blackmail)<<

Nobody MAKES the developer do that. He negotiates a trade off so that he can do something else that he wants, such as making a profit by tapping into community resources for utilities, public safety, transportation system, and so on. If he doesn't want to, he doesn't have to.

[Davc]

Agree with Snag. Just like local assessments on your property tax bill for street improvements and similar items.