New floor in rental

[Janitor Bob]

Client has rental properties...In one of these, she installed a new hardwood floor for approx. $2,500.00...Should this be expensed or depreciated? I am leaning towards depreciate as it seems to me to be a permenant improvement that increases the value of the house....but what life should it have? 27.5 (residential rental property) seems too long.

[Jack from Ohio]

Client has rental properties...In one of these, she installed a new hardwood floor for approx. $2,500.00...Should this be expensed or depreciated? I am leaning towards depreciate as it seems to me to be a permenant improvement that increases the value of the house....but what life should it have? 27.5 (residential rental property) seems too long.

I think your instincts are correct. Depriciate - 27 1/2 years. Most hardwood will last many times that long.

[Janitor Bob]

I think your instincts are correct. Depriciate - 27 1/2 years. Most hardwood will last many times that long.

Thanks...I just know the house and it will not be standing in five years...let alone 27.5. I think the new floor is probably the best part of the entire rental property...The property itself is almost fully depreciated.

[BulldogTom]

JB,

There is a school of thought that if the previous floor was in such bad shape as to need to be "repaired" in order for the home to remain useful as a rental, then you should expense as a repair. Jainen is going to rake me over the coals for bringing this up, but there is an airline case (I forget the name) where they were allowed to expense the cost of engine overhauls in order to keep the plane flying. It came down to a repair that did not extend the useful life of the plane versus an improvement which did. You may be able to work the repair angle, but it is an aggressive position, and you should have all the facts and circumstances well documented before you go this route.

Tom

Lodi, CA

[jainen]

>>I just know the house and it will not be standing in five years.<<

Ronald Reagan abandoned the concept of useful life when he "simplified" things. Since then we are required to use Class Life, a somewhat arbitrary system sold as "accelerated" depreciation.

As to my position on repair vs improvement, I have for many years treated new roofs, painting, and the like as repairs. If the house is going to fall down within five years, as Janitor Bob believes, a new floor will keep the debris from getting muddy but it won't extend the life of the building that it's a part of. It simply restores the house to the condition it was in before.

On the other hand, and particularly with a new floor, the construction probably constitutes an upgrade or improvement. If the original deck was just A/C plywood with a cheap shag cover, then the parquet offers new functionality (dancing!) that calls for depreciation.

[Janitor Bob]

>>I just know the house and it will not be standing in five years.<<

Ronald Reagan abandoned the concept of useful life when he "simplified" things. Since then we are required to use Class Life, a somewhat arbitrary system sold as "accelerated" depreciation.

As to my position on repair vs improvement, I have for many years treated new roofs, painting, and the like as repairs. If the house is going to fall down within five years, as Janitor Bob believes, a new floor will keep the debris from getting muddy but it won't extend the life of the building that it's a part of. It simply restores the house to the condition it was in before.

On the other hand, and particularly with a new floor, the construction probably constitutes an upgrade or improvement. If the original deck was just A/C plywood with a cheap shag cover, then the parquet offers new functionality (dancing!) that calls for depreciation.

I agree 100% that the new floor should be depreciated....I would just like to use a shorter life than 27.5 years....As there is No way that this house (as it exists today) will be around that long...and the floor (although it did add to the value of the home) did not extend that life....Has anybody had success in using this argument to depreciate over a shorter period....say 10 years?

[BulldogTom]

Nope, as Jainen said, all that went out the window when THAT GREAT AMERICAN PRESIDENT REAGAN changed the system to class life from useful life.

Tom

Lodi, CA

[Janitor Bob]

Nope, as Jainen said, all that went out the window when THAT GREAT AMERICAN PRESIDENT REAGAN changed the system to class life from useful life.

Tom

Lodi, CA

Thanks...That is what I explained to the client (leaving out the "great american president" part)...She just is not happy. She is 81 and "does not plan on being around another 5 years...let alone 27.5"

"I suppose the tax benefit will just go to my dumbass son....I hope he gets the house and it falls on him....the good-for-nothin bum".....

This ranting about the son went on for about 10 minutes, but I truncated it here.

[jainen]

>>depreciate over a shorter period....say 10 years<<

Since apparently the very walls are almost non-existent, perhaps you could call this platform a land improvement (15 year property). Ah, nuts. By the time you get audited it's all going to be rubble anyway. Call it a floor covering like carpets and take one fifth every year.

In fact, have a fifth this afternoon--then you won't even care!

[Booger]

Nope, as Jainen said, all that went out the window when THAT GREAT AMERICAN PRESIDENT REAGAN changed the system to class life from useful life.

Tom

Lodi, CA

I heard that during the last couple of years in the White House, "Old Ronnie" could be found

eating the wallpaper.

That B***h he was married to was running things.

Booger

[zeke]

bOOGER - yOU UNDUELY MALIGN THE LOVE OF MY LIFE!

[neilbrink]

Thanks...That is what I explained to the client (leaving out the "great american president" part)...She just is not happy. She is 81 and "does not plan on being around another 5 years...let alone 27.5"

"I suppose the tax benefit will just go to my dumbass son....I hope he gets the house and it falls on him....the good-for-nothin bum".....

This ranting about the son went on for about 10 minutes, but I truncated it here.

This reminds me of the story about George Burns when he turned 100 years old. He said he had been offered a contract to perform at Cesaers Palace in Las Vegas once a year for the next five years. He said he turned it down, because he wasn't sure Cesaers Palace would be around in 5 years.