Discussion:Depreciation
From TaxAlmanac
Discussion Forum Index --> Tax Questions --> Depreciation
| 15 February 2006 | |
| I have a client who along with his brother inherited a mini strip mall from their father. They've owned in for 30+ years and their father had it 15+ years. The only thing they are currently depreciating is a new roof they put on in 1992 and a new parking lot in 1997. This past year they are replacing the wiring, breaker boxes, electrical outlets and switches. In 2005 they spent just over $43,000, but the completion of the job (hook-ups) poured over into January 2006.
I rec'd a memo from the property manager that said they spoke with the IRS and were told that... 1) the wiring becomes part of the building, and must be written off as though the building were new over a 39 year period. | |
| 15 February 2006 | |
| and ... 2) that since the job was not actually completed in 2005, that the depreciation can't begin until 2006.
The wiring may last 39 years, but the building probably won't. Can anyone direct me or advise me ...around this. Logic tells me that I should be able to treat the electrical as a componant, and not as if it were a new building. As mentioned above the roof replacement came on the depreciation schedule in 1992 ($15,000 +) and Method "MACRS 15 yr SL" was used, the Parking lot came on the depreciation schedule in 1997 ($4,500+)and Method "MACRS 15 year % (percent)" is being used. | |
DR BRISKET (talk|edits) said: | 15 February 2006 |
| Structural components are subject to the same depreciation rules as the building itself. For commercial property, I jokingly refer to this as a "Hard 40 sentence minus 1 year!" Unfortunately, electrical wiring would fall under the structural component definition. You might review the invoices covering the $43,000 expense. There may be come expenditures that could be reclassified as repairs/maintenance for 2005. One thing to keep in mind for the future: for assets that are being depreciated such as the parking lot, if in a future year, before the depreciation runs out, let's assume the parking lot has deteriorated to the point it needs new resurfacing. In the year this happens, any remaining depreciation can be written off. Then, a new schedule would begin for the new resurfacing. The same situation would exist if the roof had to be replaced again before the depreciation ends on the original one. | |
| 15 February 2006 | |
| Thank you Dr Brisket...not the answer I was hoping for...but will adhere to the rule. | |
