Foundation repair

[Gretel]

Client spend $3,500 for putting a concrete foundation under small business building. Old foundation was eaten up by termites. Any objections to treat as R&M?

[erchess]

I am brain dead at the moment

although some may suggest that such is my normal condition. However I mention it because I can't think what R and M. are so I have no idea how you intend to recover the cost. However, you might see Repairs vs Improvements at tab 7-4. My own judgment is that the new foundation is a restoration and that it would both increase the value and prolong the useful life of the property. If I'm right then the cost of the new foundation would have to be depreciated unless the taxpayer elects to use the repair allowance method for all macrs property repaired or improved in that tax year. In that case some would be deductible currently and the rest would be deprecated.

[David1980]

R & M would be Repairs & Maintenance.

So he's asking about what you're explaining.

I've got nothing else to add. Fortunately I'm brain dead in mornings instead of evenings.

[Gretel]

Well, it certainly doesn't add any value to the building but it prolongs it's life to "normal", otherwise building would fall apart shortly. Since it doesn't add any value I am still inclined to the expense as foundation repair. If depreciation it would be 39 years, right?

[erchess]

Gabrielle

Depreciation would indeed be 39 years.

As to whether it increases value and prolongs useful life, consider carefully the questions relative to each in TTB. Or look at it this way.

Value - what could he have sold the building for with its termite eaten foundation and what could he sell it for now?

Useful Life - the building was built with a wooden foundation. Since termites have existed for a long time and since they eventually can eat even salt treated lumber, I think it was forseeable that the foundation would get eaten by termites and that this event would end the useful life of the building.

[ChEAr$]

Yes

Client spend $3,500 for putting a concrete foundation under small business building. Old foundation was eaten up by termites. Any objections to treat as R&M?

That's definitely capital in nature.

[outwest]

A look at extending life.

One of the test to capitalize is that the project extends the useful life. Let's consider the building constructed with an expected life of 40 years. At 20, we discover termites and do this project. In this circumstance, I would call this a repair, we are simply returning the building to a condition that it would survive it's originally expected life. The fact that the building may now survive even longer doesn't trump the repair character of the project.

I would consider (not necessarily use) this treatment even up to year 39 if collapse was imminent. The same project at year 40 would appear to be capital to me as the intent would appear to be extend the life.

Sometimes what we do is more art that science.

[Davc]

Capital. This is an upgrade, not a replacement. Also the cases that allowed re roofing as a repair mostly stated that the structural components of the building were not being replaced. A foundation is a structural component.