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Replaced sewer line - expense or depreciation - rental home

Level 8

There was a sewer line collapse in a rental home.  Had to dig up the cement, replace the line, etc.  Total cost over $5,000.  My first instinct is to depreciate it but I wonder if it would be a repair as they could not rent the house if they did not replace it.

So would it be expense or depreciation?  If depreciation my initial instinct would be 27.5 years since this is residential rental and I would expect a sewer line to last that long.

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Level 15

Seems to me you are just making the house usable again (don't think it could be rented w/o a functioning sewer line...) so I'd go with a repair.   Unless in some way it is a substantial improvement, but seriously,.. how does one substantially improve a sewer line?   Gold plate it?  

Former Chump..umm... AllStar.
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12 Replies 12
Level 15

Seems to me you are just making the house usable again (don't think it could be rented w/o a functioning sewer line...) so I'd go with a repair.   Unless in some way it is a substantial improvement, but seriously,.. how does one substantially improve a sewer line?   Gold plate it?  

Former Chump..umm... AllStar.
"the game of life is hard to play"

If a post answers your question, click on *Accept as solution* for future searches

View solution in original post

Level 15
Level 15
Our sewer line collapsed in our house, it was made of that Orangeburg pipe they used in the 40's (basically tarpaper and sawdust), we replaced it with up to code sewer line....big improvement!

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
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Level 11
I've just accepted that there are no easy answers for this stuff any more.  Sometimes I wonder if you can just start with a conclusion, find an example in the Regs to support it, and then work backwards to determine what facts you need. 🙂
Level 11

What's 2% of the unadjusted basis?  I usually start with a "safe harbor" determination, then you get to ignore the BAR rules.

Rick

Level 8
$50,000 * .02 = $1,000
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Level 11
Boo!
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Level 8
Thanks Rick - That was what I understanding also but wanted a little hand holding.  Not what they are going to want to hear but I want to do it right.
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Level 5

This is a repair.

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Level 1
My comment is a year late, but for the sake of others who may come along later... Reg 1.263(a)-3(k)(1)(iv) requires capitalization when the expenditure "Returns the unit of property to its ordinarily efficient operating condition if the property has deteriorated to a state of disrepair and is no longer functional for its intended use."  Going from a state of not functioning to functioning means it is capitalizable.  I thing 3(k)(1)(vi) would also likely require it to be capitalized.
Level 2

I am even later.  To argue for "repair":  The unit of property is the entire plumbing system, not just the sewer line.  I would argue the entire unit of property did not fall into disrepair, but merely a component.  The unit of property includes all the water lines, water heater(s), sinks, toilets, baths, showers, drains, etc. 

If you replaced a section of pipe in an easily accessible area (basement or crawlspace) for a few hundred dollars or even a thousand dollars, I would expense it as a repair.  The problem with the sewer line is the high cost to access (dig out, fill-in, repair landscaping, etc).   Expensing $5,000 as a repair just seems high.  But again, I would argue a small component of the unit of property was replaced and so, properly expensed.

I guess it is a question of degrees when considering whether the entire unit of property as fallen into disrepair or just a small part of it has.  

Level 8
Level 8
thanks! ... good response even a year late. :+1::+1:
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