Rental Capitalization Rules

[Terry D EA]

Rental client agrees to a repair that exceeds $2500.00 total. In this case any ticket over 2500.00 under the 2014 uniform capitalization rules, must be capitalized and not expensed. Question is, client puts 50% down and pays the remainder when the job is completed. In my opinion, the total must be capitalized as it is one ticket or receipt and this is not two separate transactions. Correct?

I think this client is showing two amounts in an attempt to expense the total. Not sure but it seems that way.

[jklcpa]

The dollar limit of $2500 is the least of the tests though. Are you sure that it meets one of the tests for being a betterment, adaptation or restoration and is not simply a repair?
http://rsmus.com/pdf_download/is_tax_1015_tars_flowchart1.pdf

[Terry D EA]

One item is the replacement of the AC unit and the other is replacement of the floor which was found to be in need of replacement upon acquisition. The AC unit is a repair and the floor replacement would be an improvement. The cost of the floor would be added to the basis of the property as it had to be replaced before the property was ready for rent. The AC can be capitalized as a separate item. The link you posted doesn't work. I have been reading section 162 of the IRS tangible property regulations but would like to see the charts in your link.

[jklcpa]

Hmm, sorry that link works for me.

I converted it to a pdf. See if that works for you.Tangible Property Regulations Flowchart 1 - is_tax_1015_tars_flowchart1.pdf

[Terry D EA]

Thanks Judy that chart is very helpful. I have been using MS Edge quite a bit and maybe that is why I couldn't open the link.