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Ed Johnson
Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10760
Experience:  GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
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Can I expense the cost of paving a parking lot

Resolved Question:

I own a building leased to a non profit preschool. I was told by an accountant I could deduct the full $9K cost for repaving part of the lot as an expense vs
adding to the basis of the bldg /then depreciating. A) Is this true? B) How is it done? The IRS form /instructions don't seem to agree w/ the accntnt.
Precision and detail in your response is necessary due to IRS sanctions if I get it wrong.
Thank you XXXXX
Submitted: 6 years ago.
Category: Tax
Expert:  Ed Johnson replied 6 years ago.

Dear XXXXXceofABC,

This depends on how you classify the nature of the new paving.

In accodance with the IRS publication on busienss expenses and rental expenses, this can be treated either way.

1. If the repaving is a repair of an existing surface, then it can be a repair. Repairs and maintenace can be expenses fully in the year they are paid for.

2. If this was an improvement, then it can be treated as a capital expense and added tot he cost basis, and depreciated over time.

Here is what I tell my clients who have rental properties with this kind of issue:

  • If there was a pre-existing drive way, that was partially stripped and repaved or simply repaved, then treat it as a repair and maintenance item and deduct as such on your schedule E.
  • If there was no pre-exisiting paved drive way, or if there was and you completely removed it and replaced it, then count it as a capital improvement, add it to the cost basis and depreciated it over time.

 

 

Ed Johnson, Tax Preparer
Category: Tax
Satisfied Customers: 10760
Experience: GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee
Ed Johnson and 2 other Tax Specialists are ready to help you
Customer: replied 6 years ago.
You speak definitively, and have impressive credentials (what is GPHR?, which generates the kind of confidence I need to proceed as you suggest.

I am a Just Answer customer in good standing. You can expect timely payment.

Please add the following to your previous response:

Which publication are you citing in developing your answer (for business and rental expense)? My scenario for the partial paving was to simply have
a new layer of asphalt added to an existing layer, so I elect the repair option.

And I understand that payment to you is deductible as well. That's a schedule A item isn't it? And deductible for 2008? or can it be used for 2007, this year?

It may be a while before I can get back to your next response as I am multi tasking, as they say now days.
Expert:  Ed Johnson replied 6 years ago.

Dear XXXXXce,

Thanks for the compliments.

I am using a number of sources. I want to add one caveat, to my comments. I assumed you were going to be making routine annual maintenanced to the drive way annually.

There is a little known rules about the expected lenght of time of a repair that could through it into a capital expense. If the repair is of a nature, that lasts MORE than 12 months, then it would be excepted, and have to be capitalized.

Generally, the nature of asphault is such that even though you may resurface it, there is an ongoing "resurfacing" that occurs with repairing and patching of pot holes, cracks and the application of asphalt (liquid) to the surface annually.

After reading my resouces, you may have a different opinion. Just remember, however you choose to treat it, you need to be consistent, and not change it up.

Note, I treate asphalt (not concrete or glassphalt) driveways in the same category as paint. consider that paind lasts from 5 to 15 years, and is still treated as an expense by the IRS for rental properties. Asphalt driveways, when resurfaced add to the esthetic beauty, but does not materiallly extend its life. The life expectancy of an asphalt surface is less than a paint job. Where as the life expectancy of an asphalt drive way at large is much longer.

Here are my resources:

http://www.irs.gov/publications/p527/index.html

http://www.irs.gov/publications/p946/index.html

http://www.irs.gov/faqs/faq-kw13.html

 

NOTE: GPHR is a certification from the society of human resource management called Global Professional Human Resources. Certification as a GPHR means I have demonstrated knoweldge and expertice for cross boarder (international) taxes between the U.s. and foreing countries; international immigration, international employee relations, and international business operations.

 

Customer: replied 6 years ago.
thanks for responding a 2nd time. Wish I could have accepted answer #1, it was more to my liking. The asphalt paving was definitely a repair, but not of an annual nature. We gained in appearances, but the real purpose was repair..
So returning to my initial query at the onset of this dialogue, is there a way to "one time" expense this in lieu of apportioning like depreciation.
I badly need an offset to income...
thanx again. I realize I am gobbling up your time, but I need the coaching.
Expert:  Ed Johnson replied 6 years ago.

Dear XXXXXce,

OK, no I go with my orinal response, but lets work through it, we have time.

1. Do not conside the drive way....

Before the repair when the drive way existed, and when it was first installed, did it add value to the property?

If this were appraised, the drive way should have added value to the property when it was first built. (can we agree)

A number of years pass, and the driveway is deteriatting, but useful....it needs soem repair...maybe it can go another year, but I want to repair it this year.

Generally, if the propert were appraised on the day befor you repaired it. the appraiser would not have discounted the value of the property...Most appraisals, unless the driverway were in such disrepair as to be useless, would not discount the appraisal. The question would be, does it have a paved drive way, yes or no...So in all likely hood, the entire house and property were not depreciated because of the condition of the drive way. (can we aggree on this?)

Now comes the repair, did making a resurface increase the appraised value of the property or did it just make it look better, prettier, more esthetic looking? My guess is, that unless that drive way was unuseable, it did not increase the apprassal value of the home or land. (can we agree on this)

Then I would say this is like painting a house. There was no added value, even though it looked nicer and might be easier to market and sell.

While the depreciable life of the drive way is a 35 year property, in the constuction industy, black top or asphalt slab is a 100 year life property. When you were done, it was still a 100 year property. The life of the integral whole was not necessarily extended.

 

 

 

 

Customer: replied 6 years ago.
Many thanks for investing your time and talents in my problem. I can concur with each of your positions /statements made in your 3rd response, and have only residual hesitations, the ones that always linger when I move into gray areas of IRS statutes. I customarily "pocket" a couple of deductions in case I goof and then have an offset against potential penalty. And I make notes to myself.

And for $10 a bonus, could you answer a couple E Z ones? Are the fees being paid you for these sessions deductible for 2007, or must I wait til 2008?

AND...
I elected an HSA (Health Savings Accountant) for medical costs for the year 2008, but pre funded it with a $1000. The check has a 2007 date. Will that prefunding check of $1000 have to wait until 2008 for deduction, or can it be used this year 2007?

And once again thank you
Royce M
Expert:  Ed Johnson replied 6 years ago.

Dear XXXXXce,

LOL, you are good.

The tax prep fees are deductable in the year they are paid. So since this is 2008, you would include them on next years return.

If you are on cash accounting, the check issue date is considered the date paid, so you would count it in 2007.

 

 

Customer: replied 6 years ago.
thank you sir.
Expert:  Ed Johnson replied 6 years ago.

You are welcome, and best of luck to you.

If your final decision is to expense the drive way repairs, make sure the entery merely says, drive

Expert:  Ed Johnson replied 6 years ago.

Sorry, we were posing and looking at the same momemt...

I meant to say, make sure the entry is: driveway (or asphault) repair.

Customer: replied 6 years ago.
Can do and will do the entry as asphalt repair.

One final hair to split.   the prefunding of my HSA accnt for 2008 did occur in 2007. The HSA did NOT exist in 2007. And this is for my personal 1040 and
Sched A so it is cash accounting. Can I still take the Sched A deduction for 2007?

I am going to email Just Answer for instructions on how to post the promised $10 bonus. When they respond with instructions, I will click the accept and post payment. I may have to completer separate transactions.

thanx Royce
Expert:  Ed Johnson replied 6 years ago.

If the check was written in 2007, you can taken the deduction in 2007.

 

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