Discussion:Rental Property - Tear Down Expense
From TaxAlmanac, A Free Online Resource
Note: You are using this website at your own risk, subject to our Disclaimer and Website Use and Contribution Terms.
From TaxAlmanac
Discussion Forum Index --> Tax Questions --> Rental Property - Tear Down Expense
| 22 March 2006 | |
| Residential Rental - was a garage in the back that Owner decided it was more of a liability than it was worth so he had it torn down at a cost of $2,500.
Repair or mainternance expense? Something that has to be depreciated? | |
| 22 March 2006 | |
| If it was already falling down and in disrepair, I think you could make a case that it was for an existing condition, which then qualifies for repair write off. Otherwise...it would be a land improvement of some sort.
Hmmm. Consider making it into a pond? Oh, never mind, no write-off's for that apparently. *smiling* | |
| 23 March 2006 | |
| It becomes part of the basis. No depreciation. will recognize the expense when he sells, as part of the basis | |
| 23 March 2006 | |
| It was falling down and in disrepair which is why the owner had it removed.
So that $2,500 all becomes part of non-depreciable land? None attributable to the 27.5 year improvements on the land? [At least if it was made into a pond we might call it landscaping and depreciate it over 15 years.] | |
| 23 March 2006 | |
| I disagree. The recent cases are all about how to separate capitalization from repairs, and IRS is losing every time that something to take care of an existing condition is expensed. The biggest recent that I can recall was FedEx or Southwest Airlines or someone who was replacing Pratt and Whitney jet engines as part of on-going maintenance. IRS said, no, this is too much money. The court ruled, as all courts have of late, the amount does NOT matter, and that this was maintenance and not an improvement. If your roof leaks, and you replace it, it's repair, according to the courts. IRS disagrees.
For 2500 bucks, c'mon, and it was falling down? Repairs, you bet. | |
| 23 March 2006 | |
| The question of repair vs. capital expenditure is irrelevant. Demolition costs are nondeductible and must be added to the cost of the land upon which the garage is situated. See Sec. 280B. | |
| 23 March 2006 | |
| While the demolition costs must be added to the bisis, what would you do in the case where the cost of the garage (or other improvement) was not fully depreciated? What happens to the remainder of the cost basis? | |
| 24 March 2006 | |
| The undepreciated cost of the garage must also be added to the basis of the land. See Sec. 280B(1)(B). | |
| 25 March 2006 | |
| Riley2: What's your reference source on that? I was told that the undepreciated basis can be written off as a sale for $0 on 4797 ... what's my source? My son who works for the IRS. What do you think? | |
| 25 March 2006 | |
| Treasury Regulations, Subchapter A, Sec. 1.280B-1 | |
| 25 March 2006 | |
| Dennis ... The referenced section 1.280B-1 refers to the cost of the demolition, not the depreciated basis ... I think????? | |
| 25 March 2006 | |
| Sec._280B. Demolition of structures "any loss sustained" has to include loss of basis. And in most cases demolition increases value. | |
| 25 March 2006 | |
| "Any amount spent to demolish any structure, and any loss sustained on account of the demolition, must be added to the basis of the land on which the demolished structure was located." Code Sec. 280B(1), Code Sec. 280B(2). RIA Tax Desk ΒΆ212,519 | |
| 30 March 2006 | |
| Pjnbar, sorry to disagree with an employee of the IRS. However, Congress disagrees with your son. Give your son a link to IRC Sec. 280B. | |
| 28 September 2006 | |
| What if there were insurance proceeds and the tear down resulted in a capital gain.(Insurance proceeds were in excess of the adjusted cost basis)The demolition cost will not be used in the cost basis but added to the basis in the land. | |
To join in on this discussion, you must first
log in.
