Discussion:Allocation of indirect expenses to be capitalized per sec 263
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Discussion Forum Index --> Tax Questions --> Allocation of indirect expenses to be capitalized per sec 263
| 10 June 2008 | |
| My client, a LLC (he and his wife are sole members) files as a partnership. First year filing is for 2007. Purpose of business is to "flip" houses. No sales in 2007 but expenses that I am not sure about include tools and automobile expense. The automobile expense mostly is attributed to driving to the property to work on the remodel and buying materials for the property (which I assume would be considered directly related therefore I would capitalize). What about the tools and the auto expense related to going to buy the tools (tools would be used for future jobs). I would normally expense these tools (due to dollar amount) instead of depreciate them. Should of any of the tool expense be capitalized as part of the property? Any recommendations as to any guidance on the allocation of indirect costs and what are included as indirect costs would be helpful. For example, are salaries included as an indirect cost? Should I be looking at the rules for spec homes even though this is just a remodel/flip?
Thanks! | |
| 7 July 2008 | |
| In my view, the houses are to be treated as inventory - any directly related supplies are included in Cost of Goods Sold - no depreciation is allowed. | |
| 7 July 2008 | |
| There's no such thing as a remodel/flip anymore. Where have you been man? Now, there's a remodel, auction and bankrupt; but not a remodel-flip.
Put them down as investment property, and get them rented out. He'll be holding them for a while if he's lucky. | |
RoyDaleOne (talk|edits) said: | 7 July 2008 |
| WPBCPA houses can never be treated as inventory for tax purposes.
If tools individually are less than a $100.00 I would charge them to the cost of the house, also I would capitalized the transportation costs. Note you should read the parts about indirect costs in Reg 1.263A. There are exceptions. | |
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