Parking Lot Paving

[David]

This must have been lost in the mix of posts so I will post again.

Client owns a restaurant business and also has a separate LLC that owns the buildingthat the restaurant is leasing. The restaurant is responsible for all maintenance,repairs, improvements, etc.

He paved the parking lot for $44K and received a grant from the city for $22K. Since the paving is keeping the property in it's original condition and isn't a betterment, does he get to expense the $22K cost?

Or is does he have to meet the expected 2 times in a 10 year period test?

Also, now that we don't need to file a 3115 for our small business taxpayers, don't we still need to make the annual election for the deminimis safe harbor and the repair safe harbor?

Thanks.

[kcjenkins]

Yes to expensing it, if desired,  and yes the election should be made annually. 

[Cathy]

Just researching tonight trying to get a handle on the new rules and regs. for repairs, improvements, etc....

 

David, 

 

Was the paving of the parking lot the first time it had been paved? Or was the parking lot already paved and what was done was an overlay of the existing pavement?  I'm under the impression that paving a parking lot for the first time is an improvement to real property (land), and therefore, must be capitalized, and it's not eligible for the Sect. 179 expense deduction.  See the following from Publication 946 in regard to Section 179 property:

 

What Property Does Not Qualify?

Certain property does not qualify for the section 179 deduction. This includes the following.

Land and Improvements

Land and land improvements do not qualify as section 179 property. Land improvements include swimming pools, paved parking areas, wharves, docks, bridges, and fences.

 

 

 

KC,

 

My line of thinking is that the cost of paving the parking lot, especially if it is the first time that area was paved, is not eligible to be expensed and must be capitalized as it's not eligible for Sect. 179 expense.  Plus, the cost ($22,000) of the parking lot paving is over the safe harbor amount of $5,000 for a repair if it is a repair rather than first time paving of the parking lot.  What am I missing?

 

Thanks 

 

[kcjenkins]

His original post said "the paving is keeping the property in it's original condition", so it is not an improvement, it's maintenance. 

[David]

Thanks, KC.

When does the twice in a 10 year period test apply? Is that for improvements (betterment) that would normally be capitalized?