Question on asset category

[NECPA in NEBRASKA]

I was looking at a table for cost segregation studies and I an unsure if water line shutoffs at the street would be considered land improvements or building improvements, because it is carrying utilities to the building. It is definitely an upgrade and included having to cut the street. 

Thanks for any ideas. I have not run across this one before and the difference between 39 years and 15 years is fairly sizeable.

Bonnie

[Medlin Software, Dennis]

Interesting.  (what used to be) common sense might lead to not be part of the building, since the item still has value, and may still be required to maintain, sans the existence any other improvements (such as a building).  For instance, a bare lot in a subdivision or commercial lot might have the utilities prepped well before any structures.  An RV park may have no significant buildings at all, just utilities for the sites.

Also have to at least consider who is legally responsible.  For instance, maybe up to the meter is the utility, and from the meter in is the property owner.  Could be some other local custom is in place.

[Medlin Software, Dennis]

Looks like at least one "expert" says 39.

 

[Lee B]

In my community, the pipe up to the meter plus the meter belongs to the utility.

[jklcpa]

Not here. Water/sewer line laterals belong to the property owner who are responsible for cost of repairs or replacement. 

[NECPA in NEBRASKA]

I know that our meter is owned by the city, because they are coming to fix a gas leak outside my house before the meter on Thursday. They already replaced the meter. The gas and water company are the same utility here. I will have to check and find out who owns the pipes and shut offs at the street for my client. Thanks for the help.

 

[jklcpa]

15 hours ago, NECPA in NEBRASKA said:

I was looking at a table for cost segregation studies and I an unsure if water line shutoffs at the street would be considered land improvements or building improvements, because it is carrying utilities to the building. It is definitely an upgrade and included having to cut the street. 

Thanks for any ideas. I have not run across this one before and the difference between 39 years and 15 years is fairly sizeable.

Bonnie

 

Fwiw, I don't think this falls into the 15-year categories of either land improvements and definitely not qualified leasehold improvements.  I think that, while this isn't directly within the building, it would be a 39-year leasehold improvement because it is related to the operation and workings of the building's internal systems and it doesn't fit into any other category. 

[NECPA in NEBRASKA]

I decided that it must be 39 years, because it was an improvement bringing utilities to the building.Thanks everyone!

[Abby Normal]

If each valve cost less the 2,500, I would expense them.

[NECPA in NEBRASKA]

The bill was $8k for two valves and the building is fully depreciated, so it looks like depreciating is the only way. 

[Abby Normal]

I'd probably argue for a 15 year life so I could bonus or 179 them, rather than $200 per year depreciation.

[Lee B]

This really falls in a murky gray area.

It doesn't meet the requirements to be called"Qualified Improvement Property."

I would argue it's a repair and expense it.

1.  It does not prolong the property's life, a fully depreciated building.

2.  It doesn't really add value to a fully depreciated building, no one evaluates water shutoff valves, they either work or they don't work.

3.  All it really does is keep the property in good operating condition.

Therefore it's an expense. Sometimes we get hung up on the details when we need take a step back and look at the bigger picture.

 

[NECPA in NEBRASKA]

3 hours ago, cbslee said:

This really falls in a murky gray area.

It doesn't meet the requirements to be called"Qualified Improvement Property."

I would argue it's a repair and expense it.

1.  It does not prolong the property's life, a fully depreciated building.

2.  It doesn't really add value to a fully depreciated building, no one evaluates water shutoff valves, they either work or they don't work.

3.  All it really does is keep the property in good operating condition.

Therefore it's an expense. Sometimes we get hung up on the details when we need take a step back and look at the bigger picture.

 

There was a board meeting last night and they decided that it may be a repair, because it was started with a leaky valve in the bathroom and then pipes started to fail out to the street. The whole place will be falling apart, because it is an over 60 year old swimming pool. I will still keep researching, but it does not prolong the property's life for sure. 

[Lee B]

29 minutes ago, NECPA in NEBRASKA said:

There was a board meeting last night and they decided that it may be a repair, because it was started with a leaky valve in the bathroom and then pipes started to fail out to the street. The whole place will be falling apart, because it is an over 60 year old swimming pool. I will still keep researching, but it does not prolong the property's life for sure. 

The additional information you provided confirms that this is an expense.

[Abby Normal]

Yes, under the newest rules, many, many things are now just an expense. Even a million dollar roof replacement.

[jklcpa]

Agree to expensing also. With the mention of cost seg studies and upgrades, it originally sounded as though this was part of a larger project.

[NECPA in NEBRASKA]

13 hours ago, jklcpa said:

Agree to expensing also. With the mention of cost seg studies and upgrades, it originally sounded as though this was part of a larger project.

Judy, I was just doing research that included what had been done in other cost segregation studies. An ex board member thought that it was an improvement, so I wanted to cover all of my bases. He isn't in the business of doing accounting or construction, but I still wanted to listen and bounce it off of my back office. ( All of you wonderful people) I would lose my mind without all of you.