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Posted by Harlan Lunsford on January 19, 2007, 1:01 am
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mmurrell wrote:
Okay, I'll start things off.
> My client bought rough property in mid 2006. His intent is
> to construct storeage buildings on the property. He has
> spent a great deal of money clearing trees and grading the
> property. Would all of this go toward the land, or can some
> be attributed toward the building itself?
clearing and grading go into land value. (Press the EASY
button now.)
> Some of his expenses include grading and engineering costs
> associated with a bridge that has to be constructed to
> supply access to the property. It is difficult to
> differenciate between those costs associated with the land
> costs, storage building costs, and the bridge costs. If we
> arrive at some reasonable allocation method could we assign
> some of these costs to the bridge and consider it land
> improvements for 15 yrs?
Again, grading costs into the land. Any other direct costs
associated with the bridge are land improvements and are
capitalized. However remember that depreciation doesn't
start until the business starts. So follow the secret of
success in accounting: allocate and pro rate.
> The actual construction of the bridge nor
(nor???)
> the storage buildings have begun. How do I handle those
> costs already incurred in 2006 for tax purposes?
Again, capitalize. No depreciation until assets are begun to
be used.
> The client did buy a grader and is doing much of the work
> himself, or hiring a grader operator. Would I go ahead and
> file a return for his LLC and show the grader as a
> depreciable business asset for 2006?.
Let's see what others say about this one, however I'm
inclined to capitalize ALL costs, depreciation on the grader
and salaries.
> The client hurried and paid engineering cost of $10K on
> December 31. He thought at least that would be deductible.
> What do you think? The engineering costs were for water
> flow studies, storage building and bridge construction
> information, etc.
(Grin) No contest. Capitalize. The client also probably
things that if you write the checks out on Dec 31st and even
though don't deliver till January, costs are still
deductible. Right? (another grin)
The best outcome is if client has no other significant
income for 2006, and you can show that by capitalizing costs
you're saving deductions for later when he needs them.
ChEAr$,
Harlan Lunsford, EA n LA
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