Posted 6/30/2020 13:50 (#8345524 - in reply to #8344792) Subject: RE: Shed addition. Depreiciate or expense?
Oskaloosa, Iowa 52577
You have not "maintained the existing usefulness of the old building". You have instead "enhanced the usefulness, or increased the value, or increased the usability"..............and therefore you have no choice, at least under the law.
(You and I both know that a taxpayer can do what he wants.........and only runs the risk of an audit, in which case he can choose to push his position, to the extent of his bank account. However, in order to comply with the law-------------)
The law requires capitalization, and depreciation, for anything that might seem to be a repair, but which increases the overall usefulness, etc-------- such as adding a pto........or adding a 540/1000 pto where there was a 540 before.
If a FARM building is enhanced as to usefulness--------- such as adding an extension, such as what you are doing.........then capitalization and depreciation. If that addition is never used, it COULD be used, and therefore still is an enhancement.
Blusterknolls is correct---------- 168(k) allows the accelerated depreciation of ANY item with 20yrs depreciable life or less........and since FARM buildings have 20yr useful lives, they qualify for the immediate depreciation in year placed in service.
So..........since I assume that the building is a FARM building, you can immediately expense it----------AFTER capitalizing it.
(Note that if that building was used to house your sideline construction business equipment, that building would not be a FARM building, and therefore would not qualify for the 20yr useful life.)
Consider the problem if NOT handled correctly in original return:
Rather than following the rules, and capitalizing and expensing, one chooses to "expense as a repair".........
........and IRS comes in two years later, and audits the purchase year...........and sees the expensing, vs proper handling.
Taxpayer is now SOL for expensing the building.......must depreciate it over 20yrs.
And, that issue is one that the taxpayer will lose in court.
So, how much does one have available for throwing out the window for fruitless tax attorneys, as compared to talking with someone who knows the rules?
Everything is a choice.
************************ One other example that many farmers (and tax preparers) mishandle----------------cost to turn up an engine.
We chipped one tractor-------- 2500. Ekotune, for 100hp.
That "increased the usability".........or, some would say "enhanced the usefulness".
Either way, the amount will be capitalized and expensed under 179............NOT expensed as "repair".