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Posted by Paul Thomas, CPA on March 21, 2008, 11:08 am
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> But adding a hot water heater, for example, in the first place is a
> capital expense, isn't it? So why isn't replacing it when it breaks
> down also considered a capital expense?
I suspect that part of his purchase price could be allocated to the existing
system, and that cost needs to be removed from basis (because the old system
is gone) and then add the cost of the new system. I suspect it's a shell
game for a very few dollars to his advantage. You can't keep stacking new
basis on top of old basis when the old asset is removed.
If there wasn't a water heater and one was installed, then it's a plus
without any minus.
In the case of the OP, there was something he bought, that is being removed
and discarded, so some subtraction to basis should be in order, yes?
Then the replacement item can be added to basis.
The purchase cost of the old unit isn't clear, but there was something -
some value - that could be placed on the existence of a then working unit.
At best, it'd be the amount he would have asked off the purchase price if
when he went to buy, the unit wasn't working or there wasn't one at all. At
worst,. it'd be his share of the cost of the replacement unit.
It starts to sound like a game with no to very little gain.
--
Paul A. Thomas, CPA
Athens, Georgia
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Posted by AES on March 21, 2008, 3:52 pm
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> You can't keep stacking new
> basis on top of old basis when the old asset is removed.
Wait! Wait!
I'm no expert on these issues, but seems to me I've seen lengthy debates
rage in the past on whether major roof repairs/replacements (on a house,
for example) had to be treated as repair costs or capital investments;
and while the endpoint remained murky, there seemed to be some agreement
that putting on a totally new roof (which means, more or less at least,
tearing off the old one) was definitely a capital improvement.
But are you now saying that when you first tear off the old roof (which
may still have a bit of serviceable life in it), you have to reduce the
basis of the house (due to having "removed" it), before you can "stack
on" the cost of the new roof as a new addition to the basis?
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Posted by boostm3 on March 21, 2008, 3:46 pm
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> >> Ok.. that explains it..... But on a larger scale, what
> >> is the common line thats drawn to help decide
> >> whether a home's upgrade is considered
> >> Maintenance or a Capital Improvement?
>
> > If the expenditure extends the life of the structure.
>
> > The building would be too hot, or too cold, or at times, just
> > right - but the building itself isn't going to last any longer
> > because you fixed or replaced the heating and air conditioning
> > unit.
>
> But adding a hot water heater, for example, in the first place is a
> capital expense, isn't it? So why isn't replacing it when it breaks
> down also considered a capital expense?
>
> Stu
>
> --
> << ------------------------------------------------------- >>
> << The foregoing was not intended or written to be used, >>
> << nor can it used, for the purpose of avoiding penalties >>
> << that may be imposed upon the taxpayer. >>
> << >>
> << The Charter and the Guidelines for submitting posts >>
> << to this newsgroup as well as our anti-spamming policy >>
> << are atwww.asktax.org. >>
> << Copyright (2007) - All rights reserved. >>
> << ------------------------------------------------------- >>
Im with you on this on this one, Stu. I just read the following in
my research:
"The IRS states expenditures that increase the value or longevity of a
home qualify as "capital improvements". Things like a garage, deck or
porch. The list can also include a new roof or heating and cooling
system, insulation, and built-in appliances. Even a fence,
landscaping, swimming pool or addition qualify."
So, in general, a case can be made that any addition or uprgrade that
increases the home's value or longevity could qualify as a capital
improvement. Certainly, then, a 20 yr old Cooling Tower which is on
the verge of failure can be upgraded, and the upgrade would quailify
under the above statement. The upgrade is financed by the unit
owners via an assessment levied. As unit owners, we vote on the
assessment, and if approved by a majority of us unit owners, the
assessment is broken into 3 monthly payments which are added on to our
common charges for those 3 months. Since we are paying for the
cooling tower replacement, I initially thought we unit owners would be
allowed to take this assessment as a capital improvement tax
deduction. But, technically, I think that all we really own is our
own unit. Common elements are paid for by us via monthly common
charges, but not 'owned' by us, I believe.. . I wonder if any
Condo owners have ever been able to make the case that common element
upgrades are deductible as home improvements to each unit owner.
========================================= MODERATOR'S COMMENT:
Please delete all unnecessary material from the prior post when responding.
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<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
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<< Copyright (2007) - All rights reserved. >>
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Posted by Avrum Lapin on March 21, 2008, 3:48 pm
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>
> >> Ok.. that explains it..... But on a larger scale, what
> >> is the common line thats drawn to help decide
> >> whether a home's upgrade is considered
> >> Maintenance or a Capital Improvement?
> >
> > If the expenditure extends the life of the structure.
> >
> > The building would be too hot, or too cold, or at times, just
> > right - but the building itself isn't going to last any longer
> > because you fixed or replaced the heating and air conditioning
> > unit.
>
> But adding a hot water heater, for example, in the first place is a
> capital expense, isn't it? So why isn't replacing it when it breaks
> down also considered a capital expense?
>
As long as the new whatever was better than the old one (e.g higher
efficiency, looks better etc) it is an improvement and if it has a
useful life of more than a year than it increases the basis.
In all likelihood a replacement roof, water heater, furnace is better
than the old one. A potential buyer might not specifically pay more for
these things but he would surely use the presence of the old item as a
bargaining chip
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by D. Stussy on March 22, 2008, 12:04 am
Please log in for more thread options > ...
> But adding a hot water heater, for example, in the first place is a
> capital expense, isn't it? So why isn't replacing it when it breaks
> down also considered a capital expense?
Because it's a replacement. That's the first clue, but not conclusive.
Remember the roofing case from the Tax Court in 2002 where the taxpayer
simply paved over the old roof with a new one - and got to EXPENSE it?
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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