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Ask Lane Your Own Question
Category: Finance
Satisfied Customers: 12236
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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I lease a property to my husbands business, of which I am

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I lease a property to my husband's business, of which I am 50% shareholder. The business has made substantial changes to the property to modify it for its intended use. Some of the work performed by subpar contractors early on had to be removed and redone by other contractors. Would I be correct in assuming that the materials and labor we paid for, that later had to be removed/redone, should be written off as an expense whereas the subsequent work must be depreciated as a leasehold improvement?

Lane :

That's exactly right .... The work that was done, that (finally added value) should be capitalized .... and the initial work, if not covered by insurance or reimbursed in some way falls into ordinary a necessary expenses by default, because they did not add value


Would I categorize the original work as Repairs and Maintenance then, and the others as Leasehold Improvements?

Lane :

(a) General rule.--No deduction shall be allowed for--

(1) Any amount paid out for new buildings or for permanent improvements or betterments made to increase the value of any property or estate.

26 U.S.C.A. § 263 (West)

Lane :
(a) In general.--There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business

26 U.S.C.A. § 162 (West)

Lane :

Yes, that's correct (just wanted to give you the applying citations there)... The original work can be categorized as original work as Repairs and Maintenance

Lane :

(sorry or the typo)


Okay, thank you! Just wanted to make sure I was entering these expenses correctly.

Lane :

You're welcome ... Just keep all the documentation from contractor number 2, especially to document the need to remove orignal work

Lane and 2 other Finance Specialists are ready to help you

Thanks Jennifer,

If you'd like to work with ME again just say "For Lane only," at the beginning of your next question.

Thanks again,