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START UP EXPENSES AND CONSTRUCTION IN PROGRESS

jskouberdis
Level 3

I AM DOING THE 1065 FOR A RENTAL LLC.  THIS IS THE FIRST YEAR OF OPERATION.  THEY ARE BUILDING A COMMERCIAL BUILDING AND WILL RENT IT OUT WHEN IT IS COMPLETED.  MY QUESTION TO THE COMMUNITY IS SHOULD I PUT ALL ARCHITECT AND CONSTRUCTION EXPENSES IN AN ACCOUNT CALLED CONSTRUCTION IN PROGRESS AND WAIT UNTIL CONSTRUCTION IS DONE TO START DEPRECIATING?  AND ALSO SHOULD I PUT ALL ATTORNEY AND ACCOUNTING AND OTHER ADMINSTRATIVE EXPENSES IN AN ACCOUNT CALLED EITHER ORAGANIZATION EXPENSES OR START UP EXPENSES AND AMORTIZE THEM.  WHEN WOULD I START AMORTIZING THEM.  THIS YEAR THE FIRST YEAR OF THE COMPANY OR THE FIRST YEAR THAT THEY HAVE RENTAL ACTIVITY.  THANK YOU TO ALL OF THE COMMUNITY FOR READING MY QUESTION.  AND REMEMBER WE ARE ALL IN THIS TOGETHER.  STAY SAFE.

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qbteachmt
Level 15

"So in your opinion I should wait to depreciate the building and amortize the start up expenses the month they start renting."

You cannot depreciate something not yet existing and in use. Think of Depreciation as the loss of a little bit of value each year due to wear and tear. Your client is still investing in something yet to exist and be in use.

And since this is a Rental entity, without a Rental, you don't really have Operations yet, either.

"and have two assets called construction in progress and organization or start up expenses as assets."

Make sure they track Attorney costs related to the construction separately (as CIP) from those for the entity formation (as operations), as well.

*******************************
"Level Up" is a gaming function, not a real life function.

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14 Replies 14
sjrcpa
Level 15

yes to both.

Start depreciating/amortizing when the business starts.

Please don't SHOUT.


ex-AllStar
PATAX
Level 9

SJR, I think some people use uppercase letters and do not realize that it does mean Shouting..... Also for people with bad vision it is easier to write in uppercase letters....just my opinion...

IRonMaN
Level 15

But it is also harder for some of us people with bad vision to read when things are all in caps.  I don't remember much from grade school but I do remember being taught upper and lower case letters and when they are supposed to be used.  Ok, I also remember how to tie my shoes in grade school ------ but I think I had to stay after school to learn that trick.  

Barber! Why didn't I think of this before? Getting paid to give out bad tax advice - need I say more? I've run with scissors for years so it is a natural fit.
PATAX
Level 9

Iron Man, I am Mr. Magoo's grandson and I do see better reading upper class letters...🤓

PATAX
Level 9

Should be uppercase, not upper class period. I guess Google voice does not understand my broken English...🤓👍

IRonMaN
Level 15

That might be the problem.  I am a little on the low class side of things, so maybe that's why I have trouble with those upper class letters 😉

Barber! Why didn't I think of this before? Getting paid to give out bad tax advice - need I say more? I've run with scissors for years so it is a natural fit.
PATAX
Level 9

Ironman....You are the best👍

sjrcpa
Level 15

We were also taught cursive writing.


ex-AllStar
IRonMaN
Level 15

I still use a lot of that cursive when I see some of the posts that show up here.  Or is that a different kind of cursing or cussing, or whatever those upper class words are?

Barber! Why didn't I think of this before? Getting paid to give out bad tax advice - need I say more? I've run with scissors for years so it is a natural fit.
jskouberdis
Level 3

The depreciation I can see when they start renting but how about the amortizing.  Do I start amortizing when they start renting or in the first year they file a return while they are constructing a building.

0 Cheers
IRonMaN
Level 15

Amortization starts when the business starts, which in this case would be when the property is first available for occupancy.

Barber! Why didn't I think of this before? Getting paid to give out bad tax advice - need I say more? I've run with scissors for years so it is a natural fit.
jskouberdis
Level 3

So in your opinion I should wait to depreciate the building and amortize the start up expenses the month they start renting.  So this year on the first return I will have zero activity and have two assets called construction in progress and organization or start up expenses as assets.  Sorry that I offended so many people by capitalizing.  I can see things better when they are capitalized.  

sjrcpa
Level 15

I wasn't offended. Just hard for me to read.


ex-AllStar
qbteachmt
Level 15

"So in your opinion I should wait to depreciate the building and amortize the start up expenses the month they start renting."

You cannot depreciate something not yet existing and in use. Think of Depreciation as the loss of a little bit of value each year due to wear and tear. Your client is still investing in something yet to exist and be in use.

And since this is a Rental entity, without a Rental, you don't really have Operations yet, either.

"and have two assets called construction in progress and organization or start up expenses as assets."

Make sure they track Attorney costs related to the construction separately (as CIP) from those for the entity formation (as operations), as well.

*******************************
"Level Up" is a gaming function, not a real life function.

View solution in original post