Would you allow this deduction?

[MJG CPA]

Taxpayer is giving me a hard time. He lives on the farm that he rents out. In 2007, he put in a blacktop driveway. He thinks this should be at least partially deductible because it is the same lane that is used by the farm tenant.

I don't think a blacktop drive falls qualifies as an "ordinary and necessary" expense. Am I being too strict?

What say you??

[mcb39]

Taxpayer is giving me a hard time. He lives on the farm that he rents out. In 2007, he put in a blacktop driveway. He thinks this should be at least partially deductible because it is the same lane that is used by the farm tenant.

I don't think a blacktop drive falls qualifies as an "ordinary and necessary" expense. Am I being too strict?

What say you??

I would allow it as a depreciable land improvement; depreciated for 20 years at 50% usage as a deduction against the rental. Cite: Page J-1 Quickfinders for Small Businesses; Asset Class 00.3

[jainen]

>>Am I being too strict?<<

Yes. "Necessary" does not mean the business would fail without it, just that it is an appropriate expense that contributes to the business operations. In this case, providing four-season access for the tenant probably is required anyway. Assuming the cost is reasonable in proportion to the income, you would reduce the basis to the percent of business use. Land improvements have 15-year recovery. Although this is what the client has asked for, it could affect the Section 121 exclusion if he sells his home.

[mcb39]

>>Am I being too strict?<<

Yes. "Necessary" does not mean the business would fail without it, just that it is an appropriate expense that contributes to the business operations. In this case, providing four-season access for the tenant probably is required anyway. Assuming the cost is reasonable in proportion to the income, you would reduce the basis to the percent of business use. Land improvements have 15-year recovery. Although this is what the client has asked for, it could affect the Section 121 exclusion if he sells his home.

I stand corrected;;;;MACRS is 15 years recovery. Next question...what happens to allowed or allowable if he sells the property and has not taken the deduction.?

[jainen]

>>I stand corrected<<

Our first posts overlapped, mchampine. Originally I called it 15-year property, but when I saw your post I edited mine to read 15-year recovery. Land improvements are 20-year property with a GDS recovery period of 15 years.

>>what happens to allowed or allowable if he sells the property and has not taken the deduction.?<<

In that case, we say the principal purpose of the road is for the home. De minimus usage by the tenant does not convert it to business property!

[MJG CPA]

OK, I appreciate the replies.

[RoyDaleOne]

Tell your client you need a log of the "trips" made by the client and made by the tenant so that you can pro-rata the use, if over 50% for business, the client gets the deduction. Date, time, purpose etc of each trip.

<G><g> :rolleyes:

[bstaxes]

RoyDaleOne, I sure would like to be the bookkeeper and be paid by each trip I account for and mark down. I might make more than preparing taxes. LOL

[kcjenkins]

Well, I would say it is available to both of them 24/7, therefore it's 50% business and 50% personal, both now and when the property is sold.

[jainen]

>>it is available to both of them 24/7, therefore it's 50% business and 50% personal<<

Available? I'm not sure which code section that comes from, but I like it! My car is available for business use 24/7, so it must be 50% deductible too.

[RoyDaleOne]

Is the driveway two lane? One for each?