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Question
In the start-up of a partnership whereby a bldg is purchased by the ptr(llc)for use as commercial rental property, and the owners Husband & Wife, both attorneys, intend to rent out space to their own law firm as well as one additional tenant, how are monies initially needed to renovate the building classified, all capital, or part capital, part loans. Are there any guidelines to follow?
Submitted: 290 days and 21 hours ago.
Category: Tax
Value: $15
Status: CLOSED
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St Petersburg, Florida
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Posted by
Merlo
290 days and 20 hours ago.
Answer
Hello JustAQuestion,
Money that is spent for capital improvements is treated as an increase to your basis in the property. Capital improvements would be larger expenditures such as replacing the HVAC, roof replacement, new flooring installed, updating plumbing fixtures, etc.
If you had expenditures for routine maintenance items such as fixing a leaky faucet or painting, these types of expenditures would be taken as a deduction in the year the expense was incurred.
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Thank you.
290 days and 20 hours ago.
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Thank you. I understand the capital vs improvements but I am asking about how to classify the money put into the partnership by the partners. Is it always treated as contributed capital or is it a loan after the initial investment if the partnership needs additional money?
Accepted Answer
Hello again,
Any money that is loaned to the partnership by either partner, strictly increases that partner's basis in the partnership. It has nothing to do with how the money is then used by the partnership.
If one or both partners loan money to the partnership, that increases the partner's basis in the partnership. If the partnership then uses that money to renovate a building which the partnership owns, those improvements are added to the basis of the building's cost. If they are used for routine maintenance, they are deducted as an expense when the expense is incurred.
Expert:
Merlo
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2/4/2009
Accountant
25+ years tax consulting. Specializing in returns for US citizens living abroad
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