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RE Tax question for Diane

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Runum

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Hi Diane. I have 2 things. Thanks for having tax loopholes. I have been working with Jim and he has pointed me in RE directions I hadn't thought of. Thanks again.

Question: I bought a bank REO MFH for investment/rentals. One of the first things I had to do was to completely replace the roof to make the structure inhabitable. Would I be able to take a full write off for the cost of the roof since it was part of the reconstruction or would I have to depreciate it? If I can write it off would I need any special documentation to substantiate my claim?

Thanks for your help.

Greg
 

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Diane Kennedy

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Aug 31, 2007
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Hi Diane. I have 2 things. Thanks for having tax loopholes. I have been working with Jim and he has pointed me in RE directions I hadn't thought of. Thanks again.

Question: I bought a bank REO MFH for investment/rentals. One of the first things I had to do was to completely replace the roof to make the structure inhabitable. Would I be able to take a full write off for the cost of the roof since it was part of the reconstruction or would I have to depreciate it? If I can write it off would I need any special documentation to substantiate my claim?

Thanks for your help.

Greg
You've asked a good question on the roof. Ten years ago I'd have told you that you absolutely had to depreciate it. But, we had a court case in CA a few years ago that changed everything.

In this case, a large commercial building had to completely replace their roof. The cost was about $80,000 (this is from memory, I don't remember the exact amount, just that it was significant). The company took it as a repair expense, the IRS said "no" and the company took it to tax court. The company won! The court decision stated that it was an expense (not a capitalizable asset) because it was necessary to keep the tenant.

It's an unusual ruling because there is nothing else quite like it. It would be tricky to rely on it. If I did, I'd (1) make sure I was in the same district (district 9), (2) make sure I had a tenant and document that they said they'd leave if I didn't fix the roof and (3) disclose that I'd taken that position on a footnote to the tax return.

Personally, I wouldn't take it. But, that's because I'm a CPA and I would worry about taking such a strong position and losing...and how that impact my clients (ie, cause an audit for them).
 
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Runum

Runum

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Thanks Diane. This particular roof cost me $9000. If it is going to cause me to have to go to war with the IRS I am not sure the benefit would be worth it. I may win the battle but lose the war. Thanks again.

Greg
 

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