Larry, I love reading your blog, thanks for all the great info.
The part about the section 179 caught my attention. I recently installed a new boiler in my building that houses my salon plus 2 rental apartments. I had planned to expense the $14000 boiler & baseboards as a repair cost on the building on my schedule E and then the new $7000 vinyl & rugs in the salon as repairs on my schedule C for the salon. I looked at these items as replacements for existing faulty or worn out parts.
Do I have to depreciate the 2 items, or can I expense them all in one year? I would appreciate any advice that you can give to me. Thanks, Joe
Joe, thank you for your kind words regarding our blog. We appreciate getting questions like yours too. We hope these things help the entire industry in becoming better business people and being more profitable. Let us know if there is anything we can do for you.
Your question is actually quite complicated and I strongly recommend you discuss this with your tax preparer. I can give you some basics, but you cannot rely on these basics, because I do not know enough about your situation to properly answer you.
Here are the basics. First of all, the section 179 I talked about which allows you to expense out personal property does not qualify on rental property. Therefore, if you own the building and then rent the building to your salon and to the tenants of the rental apartments, you would not qualify to start with.
The next issue you would have to deal with is whether or not this is actual an acquisition or a repair and maintenance. If it were considered an acquisition it would not be considered personal property so you would not qualify for section 179 and therefore would be required to depreciate the property over 39 years.
If it were considered a repair, then you would deduct under repairs and maintenance. Sometimes it is hard to distinguish a repair from a capital improvement. If the expenditure does not increase the value of the property nor lengthen the life, then you could possibly argue repairs.
This is where your tax preparer has to help you.
I know I haven’t been able to give you a straight answer on this, but I thought I would give you as much information as I could based on the information you gave me. Best of luck.
Larry Kopsa CPA
