Rental property investment

[Margaret CPA in OH]

Client with one rental in an LLC, bought a second with 50% from their funds and 50% from LOC from first property (ugh! the interest tracing won't be pretty). The 'new' property was a foreclosure. They put their several teenagers to work fixing it up (two are into construction stuff). Among the expenses are several pizzas, Rally and McDonald burgers and some gas money, probably to go fetch materials. Since these were charged to the LLC credit card and even the LOC (yikes!), any suggestions on how to account for them? My inclination is Loan to Members or deductions against the significant loan from the members. Other ideas? These expenses total $300 ish. Then the interest to carry these? I think this is the last year I want to deal with them but I've got them now!

Thanks-and I used to like extended returns.

[OldJack]

Among the expenses are several pizzas, Rally and McDonald burgers and some gas money, probably to go fetch materials.

Since the expenses all appear to have been delivered and consumed at the job site for the benefit of the owner I would include such expense in the cost of the construction.

[jainen]

>>probably to go fetch materials<<

Yeah, materials like beer. I agree with OldJack. All those things are ordinary and necessary and should be capitalized as acquisition costs.

[Margaret CPA in OH]

Thanks for the replies. I think it unfortunate that they will be depreciating these expenses over 27 1/2 years while paying the 9% interest on the LOC but did they ask me anything ahead of time?

I don't believe they fetched beer, though. There were multiple trips to Lowe's and Home Depot for drywall, paint, etc. Besides, these folks keep a pretty close eye on the 'kids.' They are all adopted and minorities from abusive situations. The parents are a physician and nurse couple with the biggest, most generous hearts I know.

[jainen]

>>The parents are a physician and nurse couple with the biggest, most generous hearts I know. <<

Sure, that's why they only paid pizza for kids doing construction work.

[Margaret CPA in OH]

Well, they didn't only pay with pizza. They gave each a small stipend, a few hundred dollars, none over $300. This is a family effort, like many family efforts. The main remodeling work was done by the oldest son, a self-employed, licensed contractor, about 30 years old. These folks also provide, as a family effort, dinner for about 40 people each month at the Tender Mercies homeless mission, among many other contributions. They are very generous.