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R. Klein, EA
R. Klein, EA, Enrolled Agent
Category: Tax
Satisfied Customers: 3375
Experience:  Over 20 Years experience
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I have a client who has a C Corp. The only asset in that corp

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I have a client who has a C Corp. The only asset in that corp now is a farm fence, they build....someone else owns the property, but they will be leasing it eventually for cattle. There were taxes paid, that the C corp picked up, I am adding that to the basis, for there was no revenue as of yet....I do not depreciate that right??? Do I book as a F/A under the farm fence?

Randalltax :

If I understand you correctly, the Corporation has a depreciable asset and the corporation has paid property taxes on that asset, and the company is not in revenue yet.


 

Randalltax :

If so, you depreciate the asset (fences are 15 years) from its original cost. You want to know how to treat the property tax paid.


 

Randalltax :

pass the donuts, please.


 

Customer:

Yes.....I am already depreciated the fence at 15 years......How do I treat the property tax, now I am thinking it is a prepaid asset???

Customer:

BTW - that is only my stage name.


 

Randalltax :

Normally, it adjusts basis for determining gain or loss without affecting depreciation. I am looking for an alternative option.


 

Randalltax :

I'm thinking it could be an ordinary expense.


 

Randalltax :

In this case, it generates an NOL. Since it is within the corp, the NOL just carries forward til used.


 

Randalltax :

The fence has a life, but it cannot be moved. It is unlikely to be sold for gain or loss.


 

Randalltax :

Reading publication 551, Basis in Assets, one gets the strong opinion that the property taxes would NOT go to basis in this situation, and, in fact, would be ordinary expense.


 

Randalltax :

If it did go to basis, then DO modify the depreciation as basis has changed. But I favor the expense option.


 

Randalltax :

So, that will be my answer today!


 

Customer:

I had it as an expense, but I moved it......I guess I will move it back....Thanks

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