Posted by JHyre in Ohio on January 16, 2003 at 13:04:46:
Thanks for the clarification…sounds reasonable to me.
John Hyre
1 more depreciation question - Posted by Ellen
Posted by Ellen on January 14, 2003 at 08:11:56:
I am giving my list of personal property to the title company tomorrow. Would the garage door opener and the 2 units that you use to open the door be considered personal property? If not, what class life is assigned to them? Thanks so much for answering these seemingly insignificant questions. All questions are important to the person asking them!
Re: 1 more depreciation question - Posted by Ellen
Posted by Ellen on January 16, 2003 at 07:55:34:
This is why it is so wonderful that everyone takes the time to share what they do here. Like Frank, I’ve been capitalizing everything. It defies logic to depreciate a small dollar amount over 5 or 7 years, but I couldn’t find anything written to substantiate expensing it. I think this will be a big help to anyone that reads it. Thanks everyone!
Discussion with my CPA - Comments ?? - Posted by Frank Chin
Posted by Frank Chin on January 15, 2003 at 09:11:17:
Hi Ellen:
I had a discussion with my NEW CPA last year on this subject.
I had done my RE accounting myself by the books for a while. After owning some properties for over 20 years, lots of assets get booked, used up, replaced by other assets. I had to replace refigerators more than once in certain apartments.
My CPA asked me “why are you capitalizing all this small cr*p”.
He goes on “I go crazy entering all of this stuff, and you get stuck with recapture on them. Can we agree on an amount below which we can expense them??”
I said “Is $600.00 too high or too low? At least I can expense refigerators”
He said “$600.00 sounds fine to me! So everything below that amount is now an expense!”.
Any opinions on my CPA’s opinion out there ???
Frank Chin
Re: 1 more depreciation question - Posted by Diane (TX)
Posted by Diane (TX) on January 14, 2003 at 18:02:35:
Hi, Ellen. I would call a garage door opener personal property, and I’d give it a 5 year life. In my view, personal property very roughly equals “shorter life” and “can be moved or separated from the property.”
You don’t actually need a list for the title company -you can figure out your allocation later.
Agree with Tom - Posted by Diane (TX)
Posted by Diane (TX) on January 15, 2003 at 17:15:42:
I’m a CPA, and my rule of thumb is $500 and under gets expensed. If a client wanted to go with a $600 limit, I’d be OK with that.
in an IRS audit… - Posted by David Krulac
Posted by David Krulac on January 15, 2003 at 16:18:00:
It was “implied” that anything under $1,000 could be expensed. I argued that paint over $1,000 should also be expensed, but did not prevail.
Re: Discussion with my CPA - Comments ?? - Posted by Tom Bazley, CPA
Posted by Tom Bazley, CPA on January 15, 2003 at 13:24:30:
At the firm where I work, our capitalization policy is to expense anything under $500. From discussions w/ other CPAs in my area and around the country, our policy is in line w/ everyone else. It’s never been an issue in an audit.
Re: 1 more depreciation question - Posted by Ellen
Posted by Ellen on January 15, 2003 at 07:43:05:
Thanks for the answer. The list of personal property, with corresponding values is turned in to the title company so that when they file the property transfer, they also fill out the real property conveyance form. It has a line to fill in the dollar amount of personal property to be exempt from the sales price on which the auditor bases the real property tax. I assume this is the same everywhere (?) I’m in Cuyahoga County in Cleveland. I wanted to post this to clarify why I provide this info at closing. Any further comments will be appreciated.
Limits? - Posted by JHyre in Ohio
Posted by JHyre in Ohio on January 16, 2003 at 08:24:08:
What are the limits of this informal policy in your view? For example, some rehabs will have lots of materials that cost< $500 when purchased individually…and I know some investors who would go out of their way to buy EVERYTHING piecemeal to ensure that most of the materials get expensed! That, in my view, would not fly on audit…and doing it on just a few rehabs would create some pretty substantial exposure. Any suggestions, other than “common sense”?
John Hyre
Re: 1 more depreciation question - Posted by JHyre in Ohio
Posted by JHyre in Ohio on January 16, 2003 at 08:19:19:
I’d treat it as Real Property on the HUD-1, because real property is taxed less in Ohio than Business Personal Property…and the returns for BPP are a pain. Then I’d break out the personal property on your books for federal tax purposes. This is not dishonest, because Ohio and Feds have different definitions of personal property. BTW, my course covers EXACTLY how to break out personal property, among other things, for big tax savings.
John Hyre
Not the same - thanks for the explanation - Posted by Diane (TX)
Posted by Diane (TX) on January 15, 2003 at 17:12:16:
In Texas, closings have nothing to do with real estate tax exemptions. You file exemptions for yourself after the closing. (The only exemptions we have are homestead, (I think) disabled, and over 65.) If you don’t file, you don’t get any exemptions.
So now I see why you were confused, and you can see why I was confused!
Re: Limits? - Posted by Tom Bazley, CPA
Posted by Tom Bazley, CPA on January 16, 2003 at 12:50:12:
If the expenditure is part of a rehab project, then we capitalize everything, regardless of cost. I should have been more clear. But once the house is put into operation, then anything else done to it that’s under $500 we expense. If it’s over $500, then we look at it to see what it is - is it truly repairs or is it something we need to capitalize? But if they purchase, say a hot water heater for $300, we would expense that.